Buy Now Pay Later (BNPL) and Loan Underwriting Considerations

By Nancy DeGrandi, Federal Compliance Research and Analysis Manager | August 26, 2025

In June, the Department of Housing and Urban Development (HUD) issued a Request for Information (RFI) seeking input on the implications of Buy Now, Pay Later (BNPL) services. The RFI specifically explores how BNPL may affect housing affordability and mortgage underwriting - particularly for Federal Housing Administration (FHA) insured loans. BNPL obligations often don’t appear on traditional credit reports, which means lenders may not have a complete picture of a borrower’s debt-to-income (DTI) ratio. However, recent developments indicate that BNPL usage is beginning to be incorporated into credit score calculations, potentially improving visibility into consumer debt.

The comment period for HUD’s RFI recently closed (August 25) – and the comment letter submitted by America’s Credit Unions is accessible here. HUD sought input across several key areas, including DTI calculations; ability to repay risks; credit reporting gaps and policy development, such as:

  • Whether short-term, unsecured BNPL debt could distort DTI ratios used in mortgage underwriting, potentially leading to inaccurate assessments of borrower risk;
  • Whether BNPL usage should be considered in evaluating a borrower’s capacity to repay an FHA-insured mortgage;
  • Whether the lack of standardized BNPL reporting to credit bureaus affects underwriting decisions and borrower transparency; and
  • Whether HUD should create formal guidance or incorporate BNPL considerations in FHA underwriting criteria.

While BNPL financing has traditionally been excluded from credit reports and therefore had no impact on a borrower’s credit score, credit reporting agencies have begun to slowly incorporate BNPL data into their models. However, closed-end debt is still not considered in FHA underwriting and may be omitted from DTI calculations if the debt is paid off within 10 months and the total payments are less than 5% of the borrower’s gross monthly income. The limited visibility of BNPL obligations - especially when there are multiple BNPL obligations - can cloud the picture of a borrower’s true debt load, complicating assessments of whether a borrower can handle the financial demands of homeownership.

BNPL continues to be a focal point in financial news with the latest research highlighting its influence on consumer habits and overall financial health. A recent article on BNPL highlighted the following:

  • Almost 1 in 4 Americans have reported using BNPL in the last year.
  • Debt stacking is common among BNPL users (60% of users had multiple simultaneous loans).
  • BNPL is increasingly used for day-to-day expenses (groceries, household expenses) and is not limited to discretionary spending.

Another article on a BNPL study highlights similar trends:

  • BNPL is attractive to consumers because purchases are paid in full after 3 to 4 interest-free payments.
  • The study found that over a quarter of U.S. consumers have used BNPL services.
  • BNPL is increasingly being used for everyday purchases like clothing and groceries, not just for big-ticket items.

Further, the Consumer Financial Protection Bureau (CFPB) study on BNPL released in January 2025 indicates that heavy BNPL users (those with more than 12 BNPL loans per year) are at greater risk of financial distress. In contrast, this article covering recent CFPB research suggests that BNPL does not cause repayment distress for first-time users. From a housing affordability perspective, since short term loans are typically not reported to credit bureaus (although some are), it presents challenges to lenders when trying to assess total borrower obligations -- especially when there are multiple BNPL loans across different platforms (e.g. Klarna, Affirm, Afterpay, etc.). Underestimating DTI could result in borrowers qualifying for mortgages that they may not be able to afford or struggle to pay because of multiple simultaneous BNPL loans.

BNPL is popular among consumers, particularly younger generations who increasingly prefer it over traditional credit cards, and its popularity will likely continue to rise. From a loan underwriting perspective, credit unions may want to consider:

  • Including BNPL questions on loan applications or ask members directly during the loan application process.
  • Reviewing statements for BNPL payments since BNPL short-term loans may not appear on credit reports.
  • If applicants have current BNPL debt, consider including active BNPL loans in the calculation of DTI.
  • Context matters- the use of BNPL should not automatically be viewed negatively. Instead, it should be assessed within the broader financial picture (income stability, overall credit behavior, etc.).

With the BNPL landscape continuing to evolve – and as we wait to see if HUD issues further guidance, credit unions may want to consider reassessing their loan application process and or possibly offering BNPL focused financial education to assist members with their understanding of these short-term financing options on their monthly budgets.