Consumers May Lean on BNPL for Holiday Spending Amidst Economic Uncertainty

Consumers are feeling more financially anxious—and at a moment where consumer credit card debt has hit an all-time high, some young consumers are turning their back on credit cards in favor of buy-now-pay-later (BNPL) services like Afterpay and Klarna.

Second quarter data from the Federal Reserve Bank of New York showed that Americans owe $1.21 trillion on their credit cards. The bank said credit card delinquencies have “remained elevated;” its data showed that the delinquency rate has hit 7.18 percent.

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Last quarter, total household debt grew by $185 billion, hitting $18.39 trillion. Both mortgage and auto loan balances also rose, indicating that consumers may be strapped for cash as inflation continues to take hold of their wallets and the shadow cast by tariffs starts to influence consumers’ behavior.

These trends could influence how consumers think about the incoming holiday season.

Cash App Afterpay holiday data shows that nearly four in 10 U.S. consumers said they feel more stressed about their finances than they did in 2024; 35 percent of those same respondents indicated a particular anxiety related to holiday expenses this year.

That tracks with the University of Michigan’s Survey of Consumers, which helps interpret sentiment. The index dropped by 5.7 percent between July and August and is down 14.3 percent as compared with August 2024.

According to Cash App Afterpay, 46 percent of consumers cited cost of living or inflation as major worries, while 36 percent said they fear unexpected expenses.

Despite their fears, one-quarter of consumers still said they plan to spend at least $1,000 this holiday season. According to Afterpay, BNPL services—paired with specific holiday shopping strategies—might be helping to float that spend.

Tanuj Parikh, head of commercial, North America, at Cash App Commerce, said BNPL services give consumers a broader sense of choice and helps them manage budgets.

“Consumers are approaching this holiday season with both caution and determination, Parikh said in a statement. “With economic uncertainty and price volatility challenging shoppers over the past year, the demand for greater choice and flexibility at checkout has never been higher.”

It seems consumers crave that choice. More than one-fifth of U.S. consumers said they would be more likely to make purchases from retailers that offer BNPL, according to Cash App Afterpay. And data from research firm Censuswide showed in July that 20 percent of consumers plan to use BNPL to purchase items this holiday season.

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Cash App Afterpay’s research showed that consumers said they most valued convenience, reliability and budget management when using BNPL services.

According to 2024 holiday data from Adobe, BNPL spending increased 9.6 percent between 2023 and 2024, accounting for $18.2 billion in digital spend. Cyber Monday proved the largest-ever spend day for BNPL purchases. In 2024, half of BNPL customers said they used the services to purchase apparel items during the holiday season, coming in only behind electronics.

And though Americans increasingly have an interest in—or a need for—BNPL, data suggests that late payments extend beyond the realm of a traditional credit card.

January data from the Consumer Financial Protection Bureau states that the average BNPL loan comes in at $142, and LendingTree data shows that more than four in 10 BNPL users said they submitted a late payment this year, up seven percentage points from 34 percent in 2024.

Despite the fact that BNPL has historically positioned itself as an alternative to traditional credit cards, FICO, the company that handles many Americans’ credit scores, said in June that it would begin incorporating consumers’ BNPL data into a score that lending companies can view.