Financial experts have revealed that more Americans are opting into “buy now, pay later” plans, warning consumers of the potential consequences of taking out such loans this holiday season.

The Christmas holiday season has arrived, meaning that millions of Americans will begin shopping for gifts for their loved ones. Those with young ones looking to get their hands on some of the latest toys may notice that prices ticked up this year by as much as 20%, as previously reported by The Dallas Express.

A report by the Federal Reserve Bank of New York claimed the number of consumers using “buy now, pay later” (BNPL) options when making purchases has been steadily increasing this year.

BNPL is a type of loan that, as the name suggests, allows a person to purchase an item without paying the entire cost upfront. The balance is typically paid over four payment periods or less. While such loans often do not charge interest, late fees for missed payments can be applied, according to the Consumer Financial Protection Bureau.

“We find that about 64 percent of respondents in the June 2023 survey have ever been offered a BNPL payment option, while 19 percent (29 percent of offerees) have used it as payment method in the past year,” reads the report from the Federal Reserve Bank of New York. “Among users, 77 percent made installment repayments using a debit card, bank account, or bank check; 10 percent used a credit card; 6 percent used a prepaid card; and 8 percent used a payment service such as Venmo.”

A more recent report by Adobe Analytics revealed that 20%, or one in five Americans, will be using such a payment plan to make purchases this holiday season. The report stated that BNPL had also contributed $6.4 billion in online spending in October of this year.

“We continue to experience a challenging economic picture, where increasing costs for consumers has been seen across rising interest rates, inflation in food prices, resuming student loan repayments, and more,” said Vivek Pandya, a lead analyst for Adobe Adobe Digital Insights, per the report. “Despite the uncertainty in the macro-environment, Adobe Analytics data has shown that the consumer remains resilient heading into the big holiday season and are embracing every opportunity to manage their budgets in more efficient ways.”

Jessica Sarceda, a Santa Monica, California resident, told Fox 4 KDFW that she will be using BNPL loans through short-term loans service Zip this holiday season to pay for gifts for her family, preferring the payment over using credit cards.

“I wouldn’t say I use it for large expenses,” said Sarceda. “Payments are hundreds of dollars, not thousands. And it’s usually event-based. If there’s a music festival, or a wedding — that’s typically where I’ll use Zip.”

Some, however, advise that there are risks associated with using the method for consumers and lenders. Kevin King, vice president of credit risk at LexisNexis Risk Solutions, told Fox 4 that such risks result from a lack of reporting between entities.

“Right now, it’s really tough for BNPL lenders to know that Kevin may have taken out a loan from four other BNPL lenders earlier this week,” said King. “That can let consumers trap themselves in debt.”