Buy now, pay later loans, which often don’t show up on your credit report, are a kind of “phantom debt” that isn’t reflected in those tallies.

Such short-term financing plans are the second-most-used form of credit payment among consumers in the U.S., according to a new report by NerdWallet.

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Credit cards are the most commonly used form of credit, with 66% of respondents using them in the past 12 months. Meanwhile, 25% said they had used BNPL services in the last 12 months. NerdWallet polled 2,061 U.S. adults in early April.

“It’s absolutely become popular,” said Sara Rathner, a travel and credit cards expert at NerdWallet.

BNPL programs often do not require a credit check or an application process, she said, making the use of these plans “so seamless that it’s very easy for consumers to adopt.”

Far fewer consumers had used a cash advance app (10%) or a payday loan (6%) in the last 12 months, NerdWallet found.

As staple items like groceries remain expensive and borrowing costs are still high, some shoppers are turning to BNPL to pay for essentials like groceries and personal care items: about 8% of adults in the NerdWallet survey used BNPL for necessities. An equal share, 8%, expect to use BNPL for necessities in the coming 12 months.

“As the cost of items that we all need to buy has gone up, it’s become a way to pay for these necessities,” Rathner said. 

While this type of line of credit has turned into the lifeline for many consumers, some changes to the payment structure are on the horizon.

BNPL firms might soon be required to comply with federal protections that cover credit card use in the U.S.

The Consumer Financial Protection Bureau announced on May 22 that such companies must provide customer protections like refunds for returned products, look into merchant disputes and pause payments during such investigations. They must also provide bills with fee disclosures.

“This is a consumer-friendly change,” said Ted Rossman, a credit card analyst at Bankrate.com.

Returns and disputes are a “notable pain point” for consumers, he said: About 18% of U.S. adults have had difficulties returning items or getting a refund through a BNPL plan, according to an April Bankrate survey.

Some BNPL plans already have such provisions in place if a consumer needs to make a return.

“It depends on the provider,” Rathner said.

But the BNPL space needs “some consistency and some predictability,” said Matt Schulz, chief credit analyst at LendingTree.

“For many years, buy now, pay later was a bit of a wild, wild West situation,” he said, as one BNPL service might operate differently to another.

Klarna replied to the CFPB announcement with a statement indicating the firm already provides such protections for users.

“To some degree, it may be wise to put some regulation around this,” Sebastian Siemiatkowski, CEO and co-founder of BNPL firm Klarna, said in a May 24 appearance on CNBC’s Money Movers.

“But they have to put that in perspective of how good of a product is this for consumers’ best interest versus credit cards,” he added.

While Americans’ credit card debt is down from $1.129 trillion in the fourth quarter of 2023, according to Fed data, it’s still the highest figure since 1999.

“Nobody should expect that to continue to fall going forward into the year,” said LendingTree’s Schulz.

About 44% of credit cardholders carry balances from month to month, Bankrate found. “That’s where we worry,” said Rossman.

Unloading the debt is not easy. Delinquencies are at a new high since late 2011, said Rossman, while 8% of surveyed cardholders have been in debt for a year or more, per Bankrate data.

However, the industry seems to interpret the data as a return to normal, he said. Lenders expected delinquencies to rise because they were “artificially low” during the Covid-19 pandemic due to the federal stimulus income, he said.

But it remains an issue at an individual level, said Rossman.

Low-income households, parents of minor children and younger consumers are bearing the brunt. About 38% of cardholders who make $100,000 a year or more carry a balance, while 56% of cardholders who earn $50,000 or lower carry a balance, Bankrate found.

Parents of minor children are more likely, 61%, to have paid a late fee over the past year than adults without children (28%), NerdWallet found.

And 12% of Gen Z adults, or those age 18 to 27, used BNPL to pay for necessities in the past 12 months, NerdWallet found. A similar share, 11%, of the cohort expect to do so in the next year.

With more changes to BNPL structures expected to materialize in the coming months, it’s important for consumers to understand the terms before they use such financing, experts say.

“You always want to know what your rights are, and that’s something to study up on before you’ve committed financially,” Rathner said.