BNPL Charge-Off Rates: What’s Really Happening in Buy Now, Pay Later Portfolios

Buy Now, Pay Later (BNPL) seems simple: split your purchase into four payments, no interest, instant approval. But behind the scenes, lenders are watching a quiet shift in how people pay - and it’s not all good. As of Q1 2025, BNPL charge-off rates are climbing. Not dramatically yet, but steadily. And for providers like Affirm and Klarna, that’s starting to matter.

What Exactly Is a BNPL Charge-Off?

A charge-off happens when a lender decides a loan is unlikely to be repaid. For BNPL, that usually means 120+ days past due. Once that threshold is hit, the debt gets written off the books as a loss. It doesn’t mean the borrower is off the hook - collections may still follow - but the lender stops counting it as an active asset.

This isn’t like credit cards, where you can miss a payment and get a grace period. Most BNPL services auto-debit your bank account or card. If that fails, the system tries again. But if it keeps failing? That’s when the clock starts ticking toward charge-off.

The Numbers Don’t Tell the Whole Story

On the surface, BNPL looks safe. The Consumer Financial Protection Bureau (CFPB) reported average charge-off rates between 0.51% and 0.54% for major providers like Klarna from 2019 to 2022. That’s far below the 2.5%-3.0% default rate for credit cards. So why the concern?

Because those averages hide extreme risk splits. Super-prime borrowers (credit scores above 720) have charge-off rates as low as 0.8%. But for Deep Subprime borrowers (scores under 580)? That number jumps to 45%.

Affirm’s Q1 2025 report showed 3.8% of its portfolio was at least 30 days late - up from 3.4% a year earlier. Klarna’s charge-off rate rose from 0.51% to 0.54% in the same period. That’s a 17% increase in credit losses year-over-year. Not a crisis yet, but a clear signal.

Pay-in-Four Isn’t the Whole Game

Most BNPL transactions - about 85% - are the classic “pay in four” model: 25% upfront, then three biweekly payments. For this product, charge-off rates vary wildly by credit tier:

• Deep Subprime: 45.0%
• Subprime: 16.0%
• Near Prime: 12.7%
• Prime: 13.2%
• Super-prime: 9.1%

But when BNPL moves beyond four payments - say, six-month or 12-month plans with interest - things change. Affirm’s longer-term loans saw 90+ day delinquency rates of 4.2%, compared to just 1.8% for their pay-in-four product. Klarna’s longer-term options hit 1.2% charge-offs, nearly double their standard plan.

The takeaway? The more flexible the payment, the riskier it becomes. And lenders are starting to notice.

Who’s Using BNPL - And Who’s Defaulting?

BNPL isn’t just for tech-savvy millennials. It’s being used by people who don’t qualify for traditional credit. The Federal Reserve Bank of Boston and CFPB found that women, Black and Latino consumers, households earning $20,001-$50,000, and people with credit scores below 620 are 2.3 times more likely to use BNPL.

And they’re also 37% more likely to default.

Users under 25 have charge-off rates of 1.8%. Those over 55? Just 0.3%. Gen Z and millennials make up 68% of BNPL users - and 54% of all delinquencies.

This isn’t accidental. BNPL providers target younger shoppers with ads on TikTok, Instagram, and during checkout on Shopify stores. But when rent, groceries, and car payments come due, those $50 impulse buys add up fast.

Reddit threads like “BNPL horror stories” are full of users juggling seven or eight payments. One user wrote: “I have 7 active Klarna payments and missed 3 this month - now I’m hit with $35 in late fees plus overdraft charges.”

Why Charge-Offs Are Rising - And What’s Being Done

There are three big reasons BNPL charge-offs are climbing:

1. Liquidity crunches. With $1.2 trillion in U.S. credit card debt and BNPL adding another $143 billion, many users are stretching thin. When income dips or an emergency hits, BNPL payments are often the first to slip.
2. Counteroffers delay, but don’t fix. Providers like Klarna and Affirm increasingly offer “modified payment plans” when users miss payments. This pushes charge-offs further out, making the numbers look better than they are. But the debt doesn’t disappear.
3. Low financial literacy. The FTC found 68% of BNPL users don’t know missed payments can trigger collections. Half believe it doesn’t affect their credit score - even though longer-term BNPL loans often do.

Meanwhile, merchants are feeling the pinch too. Return rates on BNPL purchases are 23-37% higher than credit card sales. Why? Shoppers buy more when payments feel “easy.” But when they return items, the lender still has to cover the loss.

Regulators Are Watching - And Acting

The CFPB’s January 2025 report was a wake-up call. It didn’t just report numbers - it called BNPL’s lack of transparency a risk. Unlike credit cards, BNPL providers aren’t required to report to credit bureaus consistently. That means many users don’t realize their missed payments could hurt their score - or that they’re building debt they can’t track.

California passed AB 1867 in January 2026, forcing BNPL lenders to run affordability checks - just like credit card issuers. Other states are following. The CFPB is also moving to classify BNPL as a credit product under the Truth in Lending Act by Q3 2026. That would mean:

• Clearer disclosures on interest and fees
• Consistent credit reporting
• Ability to dispute errors

Affirm already announced it will report all loans to the three major bureaus starting September 2025. Klarna and Afterpay haven’t followed - yet.

What This Means for You

If you’re using BNPL:

• Know your total obligations. Don’t just look at one payment - tally them all.
• Understand the consequences. Missed payments can lead to collections, fees, and credit damage - especially with longer-term plans.
• Check if your provider reports to credit bureaus. If it does, treat it like a loan.
• Avoid BNPL for essentials. Groceries, gas, and rent shouldn’t be split into installments.

If you’re a merchant:

• Set minimum order values. Affirm recommends $150+ to keep charge-offs under 0.5%.
• Watch your return rates. BNPL buyers return more - and that eats into your margins.
• Don’t push it on every purchase. Klarna’s internal rule? Avoid BNPL for items under $35.

The Future of BNPL: Growth With Limits

The BNPL market hit $492.6 billion in transaction volume in Q1 2025 and is projected to hit $560 billion by year-end. It’s growing fast. But so are defaults.

Experts warn that without tighter rules, charge-off rates could hit 1.2%-1.5% by 2027 - closing the gap with credit cards. The Kansas City Fed calls BNPL an “emerging vulnerability.” The Federal Reserve’s May 2025 Financial Stability Report says it could become a systemic risk if charge-offs spike during a recession.

BNPL isn’t going away. It’s too convenient, too embedded in e-commerce. But the days of “no credit check, no consequences” are ending. Providers are adjusting. Regulators are stepping in. And borrowers? They need to start treating these payments like real debt.

What’s Next?

If you’re using BNPL regularly, take stock now. List every active payment. Check your bank statements for auto-debits. If you’re struggling, reach out to your provider before you miss a payment - many offer grace periods or adjustments if you ask early.

If you’re a merchant, review your BNPL performance data. Are returns high? Are charge-offs creeping up? Consider tightening your eligibility rules or reducing BNPL visibility on low-ticket items.

The system isn’t broken - yet. But it’s changing. And the people who adapt first will be the ones who stay ahead.