The BNPL Trap? Usage, Credit Stacking, and Long-Term Impacts for Low-Wage Workers

• In Event: From Credit Access to Debt Enforcement: Financial Vulnerability Across Systems

Abstract

This paper examines the prevalence and patterns of Buy Now, Pay Later (BNPL) loan usage among low-wage workers in the U.S., with attention to credit stacking with other high-cost credit products such as payday and auto title loans. Leveraging three waves of longitudinal data, we will assess the long-term financial impacts of BNPL usage and examine variation in outcomes across states.

BNPL services have rapidly expanded, with major retailers like Walmart, Kroger, and Target offering BNPL options, and banks integrating BNPL into credit cards. For financially constrained workers, BNPL may be a timely alternative to higher-cost borrowing. However, regulators and researchers worry these products may increase indebtedness and financial instability. Research shows BNPL users generally have worse credit, lower savings, and more financial distress than nonusers, and Black, Latinx, and female consumers use BNPL more. Yet, little is known about BNPL's overlap with other high-cost credit, usage patterns, and long-term impacts on low-wage workers.

This paper asks: 1) To what extent do low-wage workers use BNPL loans, and how does it overlap with other high-cost alternative financial services like payday and auto title loans? 2) How does BNPL usage affect low-wage workers’ long-term financial well-being, and do effects vary by state-level regulatory and labor market context?

Analyses draw on the Workforce Economic Inclusion and Mobility survey, a nationally representative sample of low-wage U.S. workers (N=1,894) with incomes below 250% of the federal poverty line. Survey items capture self-reported BNPL loans and alternative financial services usage in the prior six months. Descriptive and bivariate analyses examine BNPL adoption rates and credit stacking patterns. Using three survey waves (N=2,511) and a state-level regulatory database, we assess BNPL usage's effect on financial outcomes over time. Multilevel modeling explores state-level variation in uptake and outcomes.

Preliminary findings show BNPL usage (>10%) was nearly seven times more common than payday or auto title loans, and about three times more common than pawn shop loans among low-wage workers in the past six months. BNPL users were three to four times more likely to also use other high-cost credit products. For example, 19% of BNPL users took out a payday loan, compared to 4% of non-users. This pattern suggests BNPL adoption is partly driven by cash and credit constraints rather than a preference for interest-free payments alone. Forthcoming longitudinal results will examine whether BNPL creates lasting financial burdens or serves as a lower-cost substitute for high-cost debt, and will identify state-level conditions where BNPL is most or least beneficial for financially vulnerable borrowers.

This study advances the literature in three ways: (1) documenting low-wage workers' concurrent use of BNPL and other high-cost credit, suggesting BNPL often complements rather than replaces high-cost debt; (2) using rare longitudinal data to track BNPL's effects on long-term financial trajectories; and (3) introducing a state-level comparative lens to identify regulatory and structural factors that moderate BNPL's impacts. Findings are directly relevant for policymakers and regulators seeking to protect financially vulnerable consumers in the evolving alternative credit market.

Author

• Somalis Chy, Washington University in St. Louis
  Presenting Author