Financially fragile consumers — defined as those who have a credit score under 620, fell delinquent on a loan, or were declined for a credit application in the past year — were nearly three times as likely as financially stable consumers to use buy now, pay later (BNPL) five or more times last year, according to new research from the Federal Reserve Bank of New York.

For example, if you want to purchase a vacuum from Costco (COST), you’ll have to disclose the amount you want to spend, and the BNPL company will give you a preapproved spending limit for the item. Borrowers can then make a payment through a virtual card in-app to pay for online or in-store purchases.

Unlike credit cards, which charge interest on revolving credit, most BNPL apps offer no-interest loans as long as you break down payments over six weeks or four equal payments.

For instance, if you were to purchase a tablet priced at $544 using Affirm, a payback period of 12 months at 25% APR would accrue $76.45 in interest. Meaning your estimated total would increase to $620.45 — a hefty total similar to what you might pay if you’d used a credit card.

But the use of BNPL for items as common as groceries, which now cost 25% more than they did in 2020, indicates that Americans’ personal finances are in trouble. In fact, among consumers who used BNPL during summer 2023, some 56% said they used the payment to buy groceries, a survey of 3,100 consumers from PYMENTS found.

While both groups leaned toward smaller purchases, a majority of financially fragile consumers had an average purchase under $250, while financially stable individuals were more likely to use BNPL to finance bigger purchases between $1,750 and $2,000.

Since BNPL lenders aren’t subject to regulation the way credit card issuers are, this could cause younger people to “normalize” debt accrual, warned the Consumer Financial Protection Bureau (CFPB). Consumers could also be forced into auto-payments or have less protections should they want to dispute a fee, for example.

However, the majority of financially vulnerable folks who used BNPL were those between the ages of 30 and 50.

• For this group in particular, the resumption of federal student loan repayment is yet another pressure point on their finances.

When BNPL users were asked if they could come up with $2,000 in the next month in case of an emergency, only about half said they could. Additionally, only 42% said they could use savings to meet emergency costs, while the remaining share said they would have to rely on borrowing from friends, family, banks, or credit cards.

Another concern highlighted by the NY Fed is that BNPL could be enabling consumers to spend or borrow more than they should. A separate study revealed that individuals often spent 20% more when using BNPL products.