More than a quarter of U.S. consumers have used “Buy Now, Pay Later” (BNPL), a type of short-term installment loan, to finance purchases, according to a Morgan Stanley AlphaWise survey conducted in April 2025.
Although BNPL still represents a small share of total U.S. e-commerce sales, it is expanding rapidly: BNPL loans financed 6% of e-commerce in 2024, a jump from 2% in 2020.1 Additionally, consumers are increasingly using BNPL for everyday items like clothing and groceries, rather than to pay off big-ticket items.
The growth in BNPL as well as the way it is being used is raising concerns among investors about distortions in credit reporting and consumers’ ability to pay other debt.
“As consumers use BNPL more frequently and for more reasons, we think it is worth keeping an eye on it,” says Carolyn Campbell, Morgan Stanley’s Asset-Backed Securities Strategist. “However, data suggest that the level of debt taken on through BNPL, as well as delinquency and default rates, are still very low compared to other types of consumer debt.”
The Rise of BNPL
BNPL loans started becoming more popular during the Covid pandemic as an alternative to credit cards. Installment plans range from 6 weeks to 60 months, with shorter-duration loans tending to be interest-free.
The benefits of BNPL are that it is available to consumers who might not qualify for other types of consumer debt, such as credit cards, and that it allows shoppers in households where cash is tight to pay when they have funds on hand. But its overuse could lead to ill-advised spending at the expense of savings, as well as excessive debt.
The Morgan Stanley AlphaWise survey provides a picture of the current use of BNPL:
The highest adoption rate is among younger consumers: 41% among those 16-24, 39% among 25-34, 12% among 55-64 and just 11% among 65 or older.
High-income households are the main adopters: 38% among those with annual income between $100,000 and $150,000 per year, and 27% for those who earn between $25,000 and $50,000.
The average BNPL loan balance is around $760, though major differences exist between household income brackets.
The three most common categories of items purchased using BNPL include clothing and footwear, electronics and groceries, suggesting that consumers are tapping those loans for their everyday needs rather than one-off large purchases, such as travel, concert tickets and major home appliances.
For Campbell, the more frequent use of BNPL on everyday items could be a sign of greater market penetration and outreach from the companies offering those loans, but it also could be a sign of increased consumer stress.
“If BNPL usage were to grow rapidly later this year, when we expect consumers to be more stretched due to elevated inflation from tariffs and slow income growth, we would potentially take that as a warning sign,” she says.
In its midyear economic outlook, Morgan Stanley Research forecasts U.S. inflation to accelerate to a 2025 peak between 3% and 3.5% in the third quarter.
A Push for More Data
As investors worry that tools such as FICO scores and debt service coverage ratios may not be effectively capturing potential stress in BNPL, some consumer finance companies are making efforts to integrate BNPL data into credit reports. The goal is to prevent BNPL from becoming a “masking force” of true consumer credit quality, says James Faucette, who leads Morgan Stanley’s U.S. Fintech and Payments Research Team.
“We do not yet think BNPL poses a risk that consumers have taken on too much debt, but we are wary of increased usage in the future, considering the current lack of reporting as well as greater usage among younger consumers,” Faucette says.
