‘Buy Now, Pay Later’ Lenders Pitch Loans for Needs Like Electricity and Rent

“Buy now, pay later” loans took off during the pandemic as a way for online shoppers to go on retail splurges without using a credit card.

Now, lenders are offering the loans as a means for people to finance basic households needs.

The lending apps Flex and Zip allow customers to take out loans to pay for their broadband, electricity, health insurance, mobile phone service, mortgage and water bills. Affirm, one of the most popular pay-later apps, has started providing some tenants loans to extend their monthly rent payment for a few weeks.

Many dentists, veterinarians and medical clinics now often offer instant pay-later financing, and Intuit this year started promoting “File Now, Pay Later” loans to TurboTax users who owe money in their tax return.

Pay-later loans are becoming the “working capital for the modern middle cl***,” said Karen Webster, the chief executive of Pymnts, a news and market research company for the payments industry. “Consumers are using it more for essential, everyday things.”

The rise in pay-later financing comes as many households are leaning more on debt to keep up with their daily expenses. Paying interest — to afford basic needs — adds to the overall cost of living, which has already been rising amid higher medical, housing and fuel costs.

Americans spent $160 billion last year through pay-later loans, according to research released recently by Federal Reserve economists — nearly twice what consumers spent two years earlier, in 2023.

That’s still a fraction of the more than $3 trillion U.S. shoppers spend annually on consumer credit cards. But the industry continues to expand by double-digit rates each year.

For many borrowers, the loans have become their only option: Half of those using them said they could not make ends meet otherwise, according to the latest edition of a survey that LendingTree, a loan marketplace, has compiled for years.

The loans “address the real need that people are short of funds, but just adding fees to their monthly budget and leaving them short next week is not the answer,” said Lauren Saunders, a senior attorney at the National Consumer Law Center.

How much of the growth reflects consumer preferences, versus desperation, is a question economists and industry blockysts are trying to unravel.

Some shoppers with access to other credit deliberately choose pay-later loans. Some prefer the loans’ short repayment terms and see their fees as more transparent than those on credit cards, where interest rates fluctuate and a single late payment can trigger penalties.

The pay-later loans can be obtained immediately. Customers typically download an app, connect it to a bank account or debit card, and can then immediately starting spending. The loans — which are generally offered by financial technology merchants, not banks — usually have repayment terms of just a few weeks or months, and they carry fixed fees. Many lenders do not charge late fees and simply freeze the credit lines of borrowers who fall behind.

But the pay-later loans can also become debt traps, especially when borrowers stack them up. A quarter of those surveyed by LendingTree who use the loans said they had at times had three or more loans outstanding at once. And because pay-later loans often pull their payments directly from customers’ bank accounts or debit cards, one mistimed withdrawal can set off a cascade of overdraft fees and other missed payments.

Ashley Reed, 40, initially used pay-later loans for small indulgences. Then a family emergency upended her finances: Her mother had a brain aneurysm, hours away from their home in Baltimore. Ms. Reed maxed out her credit cards paying for emergency care, including an ambulance trip not covered by insurance and a hotel room near her mother’s hospital.

Loans from Afterpay, Klarna and other merchants became the only way she could keep up with her electric bill, auto insurance and repairs and other essentials. Now, she spends about $700 a month paying down the debts and then borrowing more on her pay-later loans to stay afloat.

“It’s a roller-coaster ride, up and down — I can’t afford to have an emergency,” she said. “Sometimes I’m like, OK, am I going to have enough for groceries?

Ms. Reed, who works full-time as a public school paraprofessional and picks up weekend shifts as a part-time hospital radiology ***istant, reported her financial struggles in a survey conducted by her union, the American Federation of Teachers. More than a third of those polled said they could not afford to pay all of their monthly bills, and thousands reported borrowing — from credit cards, pay-later loans and friends and family — to get by.

Pay-later companies pitch their loans as an alternative to more punitive options. Missing a rent check can lead to late fees or eviction, and charging daily purchases on a credit card can trap consumers in yearslong cycles of mounting debt.

Affirm describes its expansion into rent financing as a pilot project. It will advance only one rent loan at a time, customers cannot borrow again until their previous month’s debt is paid. The offering is a way to give people — especially those with incomes that fluctuate, like gig workers — “some certainty when they need it, for whatever reason, even if that’s just one time,” said John Pitts, the company’s vice president of public policy.

The lenders’ own marketing materials illustrate the dire choices their customers can face. Cherry, based in San Francisco, is an instant-loan company for medical and dental practices. The case-studies section of its website spotlights some grim scenarios. One dental clinic noted that most of its customers arrive in “acute pain” and need emergency treatment that they often cannot get without taking out a Cherry loan.

Another concern about the explosion of pay-later lending is the way it largely exists outside the mainstream credit ecosystem, creating hundreds of billions of dollars in consumer debt that isn’t captured in traditional economic blockyses and snapshots.

FICO, the credit score giant, announced in mid-2025 that it would soon launch two new credit scores that would incorporate pay-later loan data. But most pay-later lenders do not report their loans to credit bureaus. A year later, FICO’s new scores still have no release date: FICO said it is waiting until lender data is sent to the credit bureaus “at scale” before its scoring models can be tested and adopted.

That creates a blind spot sometimes called “phantom debt,” much of it held not by banks but by private credit firms that operate in the less regulated “shadow banking” system.

Economists are keeping a sharp eye on the industry’s size. An blockysis last year by the Federal Reserve Bank of Richmond deemed the threat of systemic risk “limited,” but warned that “these risks could amplify if left unchecked.”

Industry lenders bristle at the idea that their loans are riskier — for individual customers or the broader economy — than other credit products. They cast their expansion into financing routine expenses like housing and utility bills as a prudent response to market demand.

Flex, founded in 2019 and based in New York, has financed nearly $40 billion in rent payments for 3 million tenants. Its customers have a median credit score under 600, the territory generally ranked as “poor” and subprime. About a third use Flex every month; the rest dip in only occasionally.

Flex charges a $6 monthly fee, plus an additional charge of 3 percent of the sum that’s borrowed and a processing fee.

This year, the company expanded its financing into a broader set of recurring monthly expenses, including utilities and auto loans.

Flex describes its fixed fees as a simple and safe system: It does not charge late fees or compounding interest, and customers cannot borrow again until their rent debt is paid off.

But even the lenders themselves acknowledge that their products — and their rapid growth — is a sign of the growing economic strain many households face.

“We can’t solve income, or the price of rent and affordability,” said Ryan Metcalf, Flex’s vice president of public affairs. “What we can help people solve is a timing issue. It’s harm reduction.”