Buy Now Pay Later: A Double-Edged Sword for Housing Stability
Buy Now Pay Later (BNPL) financing has become a mainstream payment method, offering consumers instant gratification with little friction. However, HUD’s upcoming Request for Information (RFI) signals growing concern that the unchecked growth of BNPL lending may jeopardize long-term housing affordability and stability.
This is a pivotal moment. As HUD seeks feedback from the public, lenders, researchers, and advocates, we must address a key question: Can the housing system absorb the hidden debt of BNPL without exposing borrowers—and taxpayers—to new risks?
The Invisible Weight of Phantom Debt
BNPL transactions, often marketed as zero-interest, no-hassle financing, allow consumers to split purchases into small payments. But their appeal obscures a significant risk: most BNPL obligations don’t show up on credit reports. For FHA lenders, that’s a blind spot.
In its RFI, HUD refers to this as “phantom debt”—a type of unsecured liability that distorts debt-to-income (DTI) ratios and hinders accurate risk assessment. Loan stacking is especially concerning: data from the CFPB shows that over 60% of BNPL users carried multiple loans simultaneously in 2022.
While default rates on BNPL loans remain low due to short terms and autopay features, the absence of traditional reporting means underwriters can’t easily detect patterns of financial overextension.
Buy Now Pay Later and Housing Stability
The rise in BNPL usage raises critical concerns about housing stability. According to the RFI, FHA’s current underwriting policies may not fully capture the impact of these short-term debts on a borrower’s ability to meet mortgage or rent obligations .
HUD explicitly asks whether borrowers with stacked BNPL loans are sacrificing housing payments to stay current on their installment plans. This question strikes at the heart of self-sufficiency and long-term affordability: can borrowers sustain housing if invisible debts squeeze their financial bandwidth?
Even more troubling, early signs of housing instability—like missed rent, delayed mortgage payments, or requests for forbearance—may not surface until it’s too late.
The FHA’s Dilemma: Adapt or Risk the Fund?
FHA faces a dual responsibility: promote access to homeownership and protect the Mutual Mortgage Insurance Fund. BNPL presents a regulatory gray area that could undermine both.
The current policy treats short-term closed-end debt leniently if it will be paid off within 10 months and represents less than 5% of a borrower’s gross income . But is that threshold sufficient in the age of frictionless borrowing?
HUD’s RFI asks whether new rules are needed to assess BNPL usage properly. That could mean:
- Adjusting DTI calculations to include BNPL balances
- Requiring more transparent disclosure of BNPL debts at application
- Leveraging fintech partnerships to access alternative credit data
- Exploring regulatory frameworks for responsible BNPL reporting
If these changes materialize, it could reshape mortgage eligibility criteria for millions of borrowers.
Community Development
From a community development standpoint, the growth of BNPL may signal deeper financial fragility. If families are turning to installment loans for groceries, gas, or medical bills, we must ask whether structural inequities are being masked by fintech convenience.
This is a housing issue, just as much as it’s a financial one.
We need more in-depth research into the impact of BNPL on savings behavior, emergency preparedness, and repayment habits. HUD rightly asks what data sources should inform their next steps. The answer: borrower narratives, fintech analytics, housing counseling feedback, and frontline observations from nonprofits like Navigate Affordable Housing Partners.
Housing Advocates Comment Period
HUD’s RFI closes with 22 targeted questions across five categories, including:
- Borrower risk profiles
- Underwriting visibility
- Housing stability outcomes
- Policy recommendations
Each question presents an opportunity for the affordable housing sector to shape how Buy Now, Pay Later (BNPL) fits—or fails to fit—within responsible homeownership frameworks.
We urge fellow affordable housing leaders, lenders, financial coaches, and community organizations to respond to this Request for Information (RFI) before the public comment period closes. Your insights can ensure that HUD’s future BNPL policies reflect equity, transparency, and a real-world understanding of borrower behavior.
