Buy now, pay later (BNPL) financing may have increased appeal for consumers during the year-end holiday shopping season this year in light of credit card interest rates being higher than ever, industry consultants say. 

Annual interest rates on credit cards rose to a historic high earlier this year and remain elevated compared to previous years, which has consumers looking for cheaper ways to spread out payments over time. 

“Buy now, pay later is certainly very popular, especially among younger consumers, and it’s really appealing to consumers who are less established financially, and the reason it’s appealing is that it doesn’t require a credit check and doesn’t carry interest,” said Sara Rathner, a credit card specialist at the financial research and marketing firm NerdWallet.  

While BNPL installment financing can be interest-free, the companies also provide loans that carry interest.  

The biggest BNPL providers include Affirm and Block’s Afterpay as well as the Swedish company Klarna. Smaller players are Sezzle and the Australian company Zip. BNPL executives have expressed optimism about more consumer use of such installment payment tools this holiday season. 

With more awareness of BNPL options, companies offering the services expect use of the installment payment option to climb during the holiday shopping season. 

The average annual interest rate on a credit card rose to a record high of 20.79% in August, and it remains elevated at 20.42% as of this month, according to Bankrate. Before the average crossed the 20% threshold in March 2023 and it had been in the mid and high teen percentages from 2020 through 2022, according to data from Bankrate. 

An annual report from Adobe Analytics earlier this year projected U.S. shoppers will tap BNPL financing for a record $18.5 billion in holiday spending, up 11% from 2023. 

Consumer surveys have also shown the use of BNPL ticking upward. About 40% of consumers have tried buy now, pay later at least once in the previous year and 8% said they use it “frequently,” according to an October poll of about 1,000 consumers by the Electronic Transactions Association and the consulting firm The Strawhecker Group. Those figures were up from 36% and 6%, respectively, in the 2023 survey. 

BNPL spending won’t overtake credit card spending any time soon, but banks are taking notice. 

Traditional financial institutions are offering their own version of BNPL. Citi Bank, for example, also offers financing that lets shoppers split a payment into installments. 

A survey of more than 1,000 U.S. consumers conducted in September by the credit reporting agency Experian found that 46% planned to use a major credit card to make a holiday purchase this year, and 42% said they planned to use a debit card. Respondents could pick more than one payment method. BNPL was not one of the options.  

Consumers tend to use BNPL for bigger expenses, according to a Zip holiday spending survey this month.