As the holiday season approaches, consumers are anticipated to heavily rely on “buy now, pay later” (BNPL) payment plans, presenting a boon for retailers. However, credit experts are once again sounding alarms, noting that these short-term loans, while offering consumer-friendly interest rates, come with potential risks, especially for certain demographics.

The BNPL model allows shoppers to make an initial payment at checkout and settle the rest in installments over weeks or months. While this can be appealing for those managing multiple financial obligations during the holidays, experts warn about its impact on specific groups, including younger consumers and those with limited access to credit.

Recent data reveals that short-term installment loans drove $6.4 billion of online spending in October, marking a 6% YoY increase, with a projected peak in November at $9.3 billion. Adobe Analytics estimates that one in five Americans intends to leverage BNPL plans for holiday purchases.

Despite the apparent benefits for retailers and consumers, concerns arise due to key features of these plans that could make borrowing too accessible, potentially burdening consumers with excessive debt. While BNPL loans may initially seem like an attractive option with zero-interest offerings and flexible payments, they lack reporting to credit bureaus, leading to potential challenges in assessing borrowers’ creditworthiness.

Experts worry about “loan-stacking,” where consumers accumulate debt with multiple lenders without the broader credit landscape being aware. This opacity poses challenges for lenders in terms of underwriting, particularly with an increasing number of companies entering the BNPL space.

The demographic profile of BNPL users also raises concerns. According to research by LexisNexis Risk Solutions, these short-term loans attract more non-prime credit applicants, including subprime and near-prime individuals, compared to traditional banking products. Users of BNPL services are more than twice as likely to be under 35.

While these installment plans may offer convenience and financial flexibility, experts emphasize the need for responsible usage. Consumers should be mindful of potential downsides, such as accumulating multiple debts, late payment penalties, and the lack of reporting to credit bureaus.

As the popularity of BNPL grows, experts and industry observers will closely monitor its impact on consumers’ financial well-being, urging both caution and responsible financial management during the holiday season and beyond.