The Psychology of ‘Buy Now, Pay Later’: Why Four Payments Feel Cheaper Than One

Your cart says $135. Then a second option appears under the total: four payments of $33.75, interest-free. Nothing changed. It is the same sneakers, the same money, the same you. But the number your brain reacts to just shrank by 75%, and that shrinkage is the product.

That $135 isn’t hypothetical. The Consumer Financial Protection Bureau reported in December 2025 that six large lenders, Klarna and Affirm among them, originated 335.8 million ‘pay in four’ loans worth $45.2 billion in 2023, averaging $135 apiece.

The shape barely varies: 25% down at checkout, then three installments two weeks apart. Six weeks, no interest, because the store pays instead. A June 2026 Federal Reserve overview notes that the provider hands the retailer the purchase price minus a merchant fee, typically 5% to 8%, against the 2% to 3% that credit cards charge.

The instinct it works on has a name. In a 1998 Marketing Science paper, behavioral economists Drazen Prelec and George Loewenstein described the ‘pain of paying,’ the sting of handing over money that eats into the pleasure of what you bought. “The ticking of the taxi meter, for example, reduces one’s pleasure from the ride,” they wrote. Cut one painful number into four small ones, and the meter goes quiet.

Retailers can measure what that quiet is worth. A Journal of Marketing study by Stijn Maesen and Dionysius Ang tracked 25,000 shoppers at a large U.S. apparel retailer before and after they adopted installments. Purchase probability rose about 9 percentage points, and baskets grew roughly 10%, effects that held for 26 weeks. Shoppers who used to buy small items changed most.

The friction arrives later. CFPB data show 4.1% of loans drew a late fee in 2023, and about 63% of borrowers were carrying several BNPL loans at once, roughly a third across different providers.

Many pay-in-four lenders still don’t report to the credit bureaus; a Fox Business report in August 2025 found Klarna and Afterpay decline to. That stacked balance becomes ‘phantom debt,’ real money owed, sitting on no one’s credit report.