Buy Now, Default Later: Borrowing Motives and Repayment Risk in the Buy Now, Pay Later Market

Abstract

With the recent rise in BNPL loan popularity, understanding the financial and behavioral determinants of the risks and repayment failure associated with the product has become an increasingly urgent question for consumers, lenders, and regulators. This paper examines determinants of both BNPL adoption and repayment failure using data from the 2024 Survey of Household Economics and Decisionmaking (SHED). I estimate a series of logit regressions examining whether financial distress indicators and self-reported borrowing motives predict the likelihood of missing a BNPL payment among active users. My adoption results agree with existing literature that financially distressed, younger, female, and minority consumers are significantly more likely to use BNPL loans. However, I find that repayment failure indicators operate through novel mechanisms compared to established credit delinquency literature. I find that financial fragility and existing credit card capacity lose predictive significance, while self-reported borrowing motives emerge as meaningful predictors of repayment failure, significant on their own and materially strengthening model fit when combined with financial distress indicators. Consumers who cite BNPL as their only means of affording a purchase are 139% more likely to miss a payment, while borrowers with deliberate and rational motives such as wanting to spread payments are 52% less likely to experience late payments, even when controlling for financial indicators. Predicted probability models identify a 76 percentage point spread in repayment risk across identifiable consumer profiles, ranging from a 2.6% predicted late payment rate among the least at-risk borrowers to 78.8% among those with all financial distress indicators alongside necessity motives. These findings suggest that simple screening of borrowing motives at the point of origination could meaningfully identify at-risk consumers, informing policy changes to offer a more targeted and equitable path to consumer protection.