Buy-now-pay-later (BNPL) loans are gaining traction as a popular alternative to traditional credit cards, allowing consumers to make purchases and spread the cost over time without incurring high interest rates. Services like Klarna, Afterpay, and Affirm lead the market, with installment payments during the recent holiday season seeing a 14% increase from the previous year. Although these loans offer the advantage of no or low fixed interest rates, they pose a risk of "phantom debt" since they are typically not reported to credit bureaus. This lack of reporting can obscure the true amount of debt a person holds, potentially leading to financial risks. Experts advise caution, suggesting consumers thoroughly understand the terms to avoid pitfalls such as late fees and accumulated interest.
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