Private credit firms are pouring billions into buy now, pay later debt, and the cracks are starting to show

Private credit’s appetite for consumer debt has gone from casual interest to full-blown obsession. Purchases of consumer loans, including buy now, pay later receivables, hit $136 billion in 2025. That’s roughly 14 times what they were the year before.

Nearly half of all BNPL users, 47%, reported making late payments in the past year, up from 41% in 2025 and 34% in 2024.

How private capital became BNPL’s backbone

The mechanics work through a few key channels. Forward-flow agreements, where investors commit to buying future loan receivables at predetermined terms. Warehouse facilities, essentially credit lines backed by pools of BNPL loans. And asset-backed securities, where BNPL debt gets packaged and sold to institutional investors.

Blue Owl and KKR have emerged as two of the most prominent backers fueling this expansion. KKR’s involvement is particularly notable: the firm has struck multi-year forward-flow agreements with PayPal worth up to €65 billion for European BNPL receivables, with commitments extending through 2028.

The phantom debt problem

The core issue keeping regulators up at night is something called “phantom debt.” A huge chunk of BNPL loans never get reported to credit bureaus. When a consumer takes out four or five separate pay-in-4 plans across different providers, there’s no centralized system tracking all of it.

This means traditional credit scores don’t reflect a borrower’s actual debt load. When someone applies for a credit card, a car loan, or a mortgage, the underwriter has no idea those BNPL commitments exist.

Loss rates on the standard pay-in-4 products have historically stayed under 1%. The loan terms are so short, typically six weeks or less, that delinquencies can spike quickly during economic stress without giving servicers much time to intervene. BNPL users tend to skew younger and lower-income, demographics that are historically more sensitive to economic downturns.

Why this matters for investors and the broader market

The 14x surge in private credit’s exposure to consumer BNPL debt represents a fundamental shift in who bears the risk. Previously, BNPL companies held most of the credit risk on their own balance sheets. Now, that risk is increasingly being transferred to private credit funds, whose investors include pension funds, insurance companies, and wealthy individuals.

Going from 34% of users reporting late payments in 2024 to 47% in just two years is not the kind of trajectory that supports the thesis of stable, low-risk returns.

Without standardized reporting to credit bureaus, neither the BNPL originators nor the private credit buyers have a complete picture of borrower leverage. The Consumer Financial Protection Bureau has pushed for greater transparency in BNPL lending, but the pace of regulatory change hasn’t kept up with the pace of market growth.

KKR’s €65 billion commitment to PayPal’s European receivables through 2028 is a multi-year bet that these dynamics stay manageable. If they don’t, the losses won’t stay contained to the BNPL sector, they’ll ripple through the portfolios of every institution that bought in during the boom.

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