“Buy now, pay later” (BNPL) loans have been credited with contributing to a holiday season marked by record-breaking shopping. However, questions have now been raised about their effects on the financial well-being of Americans.A surge in the popularity of these loans has been driven by consumers looking for interest-free solutions to high prices and interest rates. Retailers have capitalized on the trend, leveraging BNPL loans to attract customers and increase spending. Concerns have been raised that these loans may be encouraging young and lower-income Americans to take on excessive debt, potentially creating a hidden risk to the financial system.Economist Tim Quinlan recently described these loans as “phantom debt,” highlighting the potentially worrisome impact of these loans. While traditional measures of consumer credit may indicate a relatively healthy overall financial landscape, they may not be capturing the full extent of the rapidly growing BNPL market. Estimates put the amount of spending through pay-later options at around $46 billion this year, with younger Americans accounting for a significant portion of these loans.The availability of pay-later programs has surged during the pandemic, particularly with the rise of online shopping. Young adults have been prominent users, raising concerns about over-reliance on such loans. The ease of using pay-later options has also been cited as a factor contributing to excessive spending. Additionally, it’s been noted that these loans often lack oversight, potentially leading to misuse and increasing vulnerability among some consumers.While companies offering pay-later loans have emphasized their commitment to assessing borrowers’ ability to repay and providing transparency, regulatory protections have been called into question. Consumer advocacy groups and lawmakers have called for tighter scrutiny to ensure that borrowers are not taking on more debt than they can handle. The current regulations are insufficient, and it has been suggested that efforts need to be made to create a balance between access to credit and responsible lending practices.