‘Burrito Loans’ Are About to Hit Credit Reports

I’m talking about Sweden-based Klarna. The company offers “buy now, pay later” (“BNPL”) loans. And Klarna has been cropping up in the financial media as more folks turn to this kind of financing.

Social media lit up with comments about the partnership between Klarna and food-delivery giant DoorDash (DASH). Users joked about customers defaulting on their “burrito loans.”

But there’s more to the story than this…

Klarna’s CEO claimed that the company’s net loss in the first quarter was due to one-time payments.

You see, the company reported a $99 million loss. That far outpaced the $47 million loss it reported the previous year.

But Klarna had also reduced its headcount by roughly 40%. And it said this was partly thanks to investments in AI. So Klarna likely spent a big chunk of money paying severance to those workers.

A sum like $99 million is big. But Klarna also boasted $701 million in revenue and a jump in overall consumers.

Remember, Klarna offers BNPL loans. And these have been increasingly popular…

Financial-services giant Capital One Financial (COF) estimates that nearly 87 million people in the U.S. used BNPL last year. And it expects that nearly 92 million will do so in 2025.

Now, Klarna shares select data with credit bureau TransUnion. But it says that the shared data doesn’t affect your credit score.

But changes are coming…

Concerns Over BNPL

Credit-score giant FICO recently announced new credit-score models. And the new models include BNPL loans.

Sure, these loans are convenient. But the interest rates are massive. With Klarna, they can get as high as 35.99% APR.

And those “burrito loans” will be part of credit scores.

Folks making regular payments on their loans would see a boost to their score. And if they aren’t, they wouldn’t get to take on more debt.

That would be the best-case scenario.

According to Capital One, about 33% of BNPL users have a credit score below 620, a current delinquent loan, or a rejected credit application.

Meanwhile, a shocking 25% of BNPL users have no emergency fund outside of their retirement savings.

Now, Klarna didn’t only take a $99 million loss last quarter. The company also saw its consumer-credit losses climb by $19 million.

That’s debt written off by Klarna because customers failed to repay the money they borrowed. And Americans are carrying more debt than ever…

In the first quarter of 2025, American household debt hit its highest point in history. Americans hold $18.2 trillion dollars in debt of all types. More than two-thirds of that figure is home loans.

But we also know that Americans’ percentage of debt to disposable income is about the same as it was in the mid-1990s. The Federal Reserve reports that it’s roughly 11.3% right now.

So FICO scores are changing. Millions of Americans using BNPL are in the crosshairs. And the number of them using these loans is on the rise.

“Burrito loans” might end up helping some consumers’ credit ratings. But it shows that millions of folks are taking on new debts just to pay for daily life.

Good investing,

Ethan Goldman