U.S. Consumers Spend $160 Billion on Split-Payment Plans

Americans spent more than $160 billion on buy-now-pay-later plans in 2025, according to Federal Reserve data. The spending figure includes purchases made through services such as Klarna, Afterpay, and Citi Flex Pay. Consumers are increasingly using these tools for routine expenses rather than just large purchases.

The expansion of these services has accelerated recently. Shoppers now use split-payment options for groceries, phone bills, personal care items, and even monthly rent. The Federal Reserve data indicates that approximately half of the $160 billion total was spent through pay-in-four plans. These plans allow users to divide a purchase into four installments over a six-week period.

The availability of these services has grown significantly over the past two decades. Layaway programs first appeared in the 1930s during the Great Depression. Unlike those early systems, which required customers to wait for delivery until final payment, modern programs provide goods immediately. This shift has changed how shoppers approach budgeting for both immediate needs and planned purchases.

While many of these plans advertise zero interest, they often include other costs. Credit card flexible plans charge a fixed monthly fee that is added to every installment. For example, a plan with a $10 monthly fee over 12 months adds $120 to the total cost of the purchase. This fee structure applies regardless of whether the consumer makes every payment on time.

Late payments can further increase the effective cost of borrowing. A recent survey found that nearly half of buy-now-pay-later customers missed a payment in 2025. Late fees and penalties can stack up quickly. The effective annual percentage rate for these missed payments can reach 100% or more. This rate is substantially higher than the average 23% annual percentage rate on U.S. credit card accounts in 2024.

Gracie Owens, a long-time user of Klarna, said she primarily uses the service to buy clothing. She stated that the program allows her to treat herself occasionally without worrying about spending large amounts of money at once. She acknowledged that some people believe consumers should not buy items they cannot afford in full, but she views the split payments as a manageable solution.

Financial coach Amy Bajada cautioned that the convenience of these tools can come with a cost. She advised consumers to live within their means and not rely on installment plans as their only financial strategy. Bajada noted that the availability of a payment option does not automatically make it a smart financial move. She emphasized the responsibility that comes with using such resources.

The nature of the purchases also affects the consumer experience. Some shoppers reported frustration with making payments for items that were consumed immediately. One consumer described the process of paying off a meal delivery service in weekly installments as particularly defeating. The physical item is gone, but the financial obligation remains.

The data suggests a shift in consumer behavior toward immediate gratification with deferred payment. The $160 billion figure represents the total amount spent through these specific channels in the previous year. The breakdown shows a heavy reliance on short-term, four-installment plans. The next phase of growth may depend on how consumers manage the cumulative fees associated with these services.