Klarna Losses Double in Q1 as U.S. Consumer Debt Surges to All-Time High

A red flag for anyone tracking U.S. household borrowing and the condition of the buy now, pay later (BNPL) market was Klarna’s first-quarter earnings. Higher revenue and an all-time high in customers couldn’t stop the Swedish fintech company from doubling its net losses to $99 million.

Klarna reported a 17% increase in consumer credit losses, at $136 million — an indicator that repayment stress is rising among its user base.

The company reported its loss rate increasing modestly, from 0.51% to 0.54% of gross merchandise value, but the larger trend is pointing toward growing stress among borrow-to-pay consumers.

Klarna recently replaced Affirm as Walmart’s exclusive BNPL partner and teamed with DoorDash, pushing BNPL into everyday spending. The company said it had also reached 100 million customers, a record number. But, as BNPL creeps into small-ticket and essentials, repayment risk grows increasingly impossible to ignore.

According to a LendingTree survey, 41% of consumers who use BNPL made at least one delayed payment in the last year, up from 34%. Approximately 25% of users used it to purchase groceries — almost twice the usage for the prior year.

In its latest earning report, Klarna reported a 17% increase in consumer credit losses ($136 million).

Total U.S. consumer debt reached an all-time high of $18.2 trillion, said the New York Fed. Delinquencies on student loans specifically rose from below 1% to almost 8% in Q1, fueled by the removal of pandemic-era support and renewed enforcement.

While late payments on BNPL are not unusual, they usually fail to be reported to the credit bureaus — an important problem for lenders as well as consumers.

Klarna and most competitors fail to regularly report payment history to the major credit reporting agencies. Consequently, consumers who miss payments won’t necessarily experience an immediate effect on their credit score — but won’t benefit from positive credit-building for on-time repayment, either.

For the subprime market, it can hide actual risk from lenders and prevent consumers from being included in mainstream credit advancement.

The risk of overspending through BNPL is most sharply visible among subprime consumers. As calculated in a January 2025 analysis by the CFPB using 2022 data, 63% of consumers who used BNPL had active multiple loans, and one-third of consumers borrowed from more than one lender.

Nearly 2 in 3 applicants for BNPL were subprime or deep subprime borrowers, and 78% were accepted by lenders. These customers carried higher balances in other forms of non-mortgage debt, such as credit cards and personal loans.

Young consumers depended most on BNPL. For 18-to-24-year-olds, 28% of all non-secured borrowing consisted of BNPL — much higher than the 17% median.

The Richmond Fed validated the trend, noting that individuals who used BNPL would be less educated, younger, and would have weaker credit profiles, having higher debt burdens.

But according to a new PYMNTS report, there is an important insight: 40% of subprime consumers applied for BNPL compared with just 27% for super-prime consumers.

Subprime borrowers aren’t just resorting to BNPL, though — they’re choosing it: 21% of consumers with subprime credit use these credit lines for necessities in an attempt to build their credit score.

Another 25% use credit for nonessentials for the same reason — making them 30% more likely than high-score borrowers to attempt this form of credit-building.

Despite having high denial rates — subprime customers are 2.3 times more likely to be turned down for credit cards — they are, in fact, trying to obtain mainstream credit products. They’re 3.6 times as likely as super-prime customers to apply for new credit cards and twice as likely to apply for debt consolidation.

The explosive growth of BNPL more than just the challenge of individual repayment. According to the Richmond Fed, the number of BNPL loans originated in the U.S. swelled from 16.8 million in 2019 to 180 million in 2021, increasing the total loan value from $2 billion to $24.2 billion.

A number of such loans never find their way into the credit reports, keeping borrowers’ true obligations in “phantom debt.” Such lack of clarity can lead lenders to lend too much, boosting the chances for systemic stress.

The Richmond Fed also cites the spillover effects onto other consumer credit products. Consumers might repay BNPL — often automatically — while defaulting on bigger, reported loans like cars and credit cards.

In response to these mounting concerns, the CFPB in May 2024 issued a rule that designated BNPL lenders as being credit card issuers subject to the provisions of the Truth in Lending Act.

The designation requires the issuance of formal billing notices, refundable credits, and dispute resolution — steps that aim to synchronize consumer protections with those afforded to traditional credit card users.

Together, these trends discredit the argument that customers using BNPL are inherently irresponsible and overspent. Instead, they point toward an underlying story about consumers being priced out through institutional obstacles and piecing together short-form workarounds.

For nonprime lenders and fintechs, Klarna’s losses represent a sign of things to come — and an argument for tighter underwriting, reporting, and borrower support as the world increasingly goes deep into BNPL.

Sebastian Siemiatkowski, Co-founder and CEO of Klarna, was upbeat, “Our AI-first strategy is driving exceptional returns, we’re outpacing competitors, our merchant network is scaling rapidly, and our next-gen products are reshaping money management for millions.”