Pagaya Issues $300 Million in Bonds to Fund BNPL Loans

Consumer lending platform Pagaya is reportedly pushing into the pay later market.

The company is about to issue $300 million in bonds that will be used to fund buy now, pay later (BNPL) loans offered by Klarna, The Wall Street Journal (WSJ) reported Thursday (May 22). J.P. Morgan Chase and Atlas, the asset-backed finance unit of Apollo Global Management, are arranging the bond sale.

In the last 12 months, Pagaya has issued about $5 billion of bonds, the report said. Those bonds were backed by bundles of unsecured personal and auto loans that Pagaya once focused on.

Pagaya is moving into the BNPL space as it’s one of consumer lending’s fastest-growing segments, making up roughly 8% of purchases during last year’s holiday season. The move puts the company in head-to-head competition with Klarna rival Affirm, “the dominant FinTech company in [BNPL] lending,” per the report.

However, while Affirm chiefly lends to shoppers with high credit scores, Pagaya has grown quickly by funding “second look” loans to borrowers with somewhat lower credit scores that companies such as Klarna would otherwise turn down, the report said.

Although Pagaya is making the loans and bundling them into its bonds, its lending partners can enjoy the appearance of approving more borrowers, Pagaya President Sanjiv Das said, according to the report.

“The merchant is happy because they get more approvals, and that is very significant for Klarna,” Das said, per the report.

Consumers with low credit scores are turning to BNPL and other nontraditional avenues — payday loans and credit-builder loans — to cover essential purchases and bridge cash flow gaps.

These consumers apply for loans and BNPL at higher rates than other consumers. For example, 40% of subprime borrowers have applied for BNPL compared to 27% of super-prime consumers. These borrowers are twice as likely to have applied for a payday or credit-builder loan.

These alternatives offer accessibility and often come with lower denial rates than traditional cards, however, they often carry high interest rates and fees that can put more pressure on borrowers.

“And the effectiveness of some alternative credit providers for building credit is limited, as not all report consumer behavior to the major credit bureaus,” PYMNTS wrote May 20.