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Klarna and Affirm Keep People Spending and Creating Phantom Debt

December 25, 2023

Lucille Barilla

Buy now, pay later apps such as Klarna and Affirm keep people spending even after their purchase arrives. These payment methods are creating phantom debt for millions of consumers who use the approach to purchase everyday items and the occasional splurge.

Klarna and Affirm make larger purchases more affordable by breaking them into smaller, more manageable payments over several weeks. According to Klarna’s website, a soft credit check is run when you use the site to split a purchase into four interest-free payments. It does not affect your score, but it ensures to the site that a consumer pays their bills on time.

Affirm allows shoppers to pay off their purchases in four installments every two weeks. Alternatively, for bigger ticket items, payments can be made monthly.


However, this easy payment method is causing consumers to rack up bi-weekly pulls from paychecks that, when added up, can lead to phantom debt. Phantom debt is debt that is old, defaulted, or not owed and is still being pursued for collection to be paid by the presumed debtor. When consumers default on payments because they do not have the funds available, this creates phantom debt.

Long-term payment plans can cause this type of debt when they are not settled and are sent to collection. However, the consumer still gets the purchase before it’s fully paid for, creating a cycle of deceit for some users.

“Responsible payment offerings are of utmost importance for businesses using BNPL, especially because users are primarily younger and minority groups who are more likely to have no credit history,” Max Lillard, senior finance analyst at Capterra, told Essence. “When implemented correctly, business can help customers access previously gated financial opportunities, and in some cases, help them build credit.”


However, with these types of payment plans, some consumers believe they can splurge recklessly on items they might otherwise not have been able to afford, as they are not paying a significant upfront cost. Nor are their purchases being reflected on a credit report.

Consumers continue to lean on payment installment programs. Rapid inflation has made everyday needs like groceries, gas, housing, and healthcare much more expensive. People in their 20s and 30s are by far the most significant users of pay-later loans. These services could also be an essential source of credit for communities that needed access to traditional loans. However, with any payment plan, tracking your purchases and ensuring you have enough cash for your bills and personal needs before hitting that pay-in-four option is advisable.

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