Buy Now, Pay Later (BNPL) services have emerged as a prominent feature in consumer credit markets, offering an alternative payment method that allows consumers to purchase goods and defer payment over multiple instalments, typically with no interest if payments are made on time. In this study, we explore the behavioural dynamics underlying BNPL usage and its impact on consumer spending behaviour through an experimental online shopping scenario, where participants engage in an online shopping exercise under varying conditions of BNPL availability and usage. We find that participants spend, on average, 4.39% more when using BNPL compared to debit cards. Disentangling the relaxation of liquidity constraints and the mental accounting effect, we demonstrate that the perception of inflated balances from prior BNPL usage is a major driver of increased BNPL spending. That is, under identical liquidity constraints, participants with inflated balances from prior BNPL usage were 22.2% more likely to purchase discretionary items than debit card users, whose balances reflected their real budget constraint. Additionally, we show that the expectation of future access to BNPL acts as a liquidity insurance where consumers increase their current debit card spending by 3.1%, revealing BNPL's broader influence on consumer behaviour. While salient risk disclosures improve understanding of BNPL risks, they do not significantly affect usage or spending patterns. These findings highlight BNPL's psychological impact on spending and the need for targeted consumer protection.