Buy now, pay later (BNPL) is a short-term financing option that allows consumers to purchase items and pay for them over time, usually with no interest. This type of payment plan has become extremely popular, with many merchants offering it. As Buy Now Pay Later keeps trending, it is essential to understand exactly what this option can provide you with.

What is Buy Now Pay Later & How it Works

Buy Now Pay Later (BNPL) allows you to divide your purchase into multiple equal payments, the first typically due at checkout. The remaining payments are then billed to your debit card or bank account (and, for some providers, a credit card) until your purchase is paid in full. It is like a layaway option, where consumers can purchase items online or in-store and then make regular installments over a few weeks or months instead of paying the entire amount upfront. But unlike layaway, you get what you buy immediately. Most major retailers have Buy Now Pay Later options, however it is important to consider the plan and your financial situation before deciding to use one. 

Some BNPL plans may come with interest and fees depending on the provider and the length of financing. When using a Buy Now Pay Later app, you purchase at a participating retailer and then opt for Buy Now, Pay Later at checkout. If approved, you often make a small down payment, with the amount varying based on the size of the purchase and the number of overall payments. Repayment plans can vary from weekly to biweekly to monthly. Payments are usually deducted automatically from your debit card, bank account, or credit card, though you may sometimes be able to pay via check or bank transfer. Compared to using a credit card, BNPL apps generally don’t charge interest or fees, and they have a fixed repayment schedule. However, many providers offer a variety of payment plan options, with those over a longer period of time having interest. With a credit card, you can carry a balance or use your credit line indefinitely, and you may be charged interest on any balance carried over to the next billing cycle. BNPL apps offer the convenience of purchasing items with no interest and a predictable repayment schedule. However, if you use your credit card to cover the payments and you don’t pay your balance in full monthly, you will accrue interest. 

Should You Buy Now Pay Later?

Buy Now Pay Later can be helpful for larger expenses such as a mattress for a new apartment or a computer for school. It may seem like an easy and low-cost way to pay, but it is still essential to be cautious when entering debt. It is best to look for a BNPL plan with low to zero interest to lower the monthly payments and make it easier to pay off the loan. It is not a good idea to use BNPL if you are having difficulty paying your bills. BNPL is convenient and can be tempting to overspend, but this can result in high fees or being sent to collections, negatively impacting your credit score. Be sure to think carefully and consider all aspects of a BNPL plan before deciding.

The Advantages and Disadvantages of Buy Now Pay Later

BNPL is a great way to purchase items without paying upfront, usually without interest charges. It is also possible to get approved for this loan even if you have a low credit score or lack of credit history.  Unlike credit cards, BNPL loans do not add to your credit card debt (unless you make the payments on your credit cards) but add to your personal loan debt. These loans will not affect your credit score unless you fail to make payments. On the downside, paying off a BNPL loan will not help you establish and build good credit, and you might miss out on any benefits that credit cards offer, such as cash-back or reward points. Many BNPL providers do not report your payments to credit bureaus, so they often lack credit-building opportunities. This also means you can be approved for multiple loans simultaneously because these providers are unaware of your other loans. Returning items purchased with BNPL can be complicated. You should receive your money back, but there may be a delay until the merchant informs the BNPL lender of the refund. You may have to keep making payments in the meantime. If you don’t, the payment might be marked tardy or missing, resulting in added fees and a possible ding to your credit score.

What Impact Does Buy Now Pay Later Have on Your Credit Score?

Each Buy Now Pay Later loan is typically not reported to the credit bureaus, so they are not a credit-building opportunity, but every company has a different policy.  If you are looking for credit building, you should check with the provider to see if they do credit reporting. Most BNPL providers only require a soft credit check for approval, but others may require a hard pull of your credit file, which could temporarily knock a few points off your score. It is crucial to ensure you can pay the installments if you agree to a BNPL loan. If you cannot pay, this can lead to delinquency and harm your credit history, report, and score.

Read our article Understanding Your Credit Score for more information on credit scores.

Apps that let you Buy Now Pay Later

Numerous apps offer Buy Now Pay Later. Some of the most popular include Affirm, Afterpay, PayPal, Zip Co, and Klarna.

Popular retailers like Amazon and Walmart work with Affirm. Affirm offers a pay-in-four plan with no interest. However, the monthly payment plans that Affirm provides, which can last up to 60 months, may have interest rates that depend on the store. Some stores may have no interest, but others may have an APR of up to 30%. Additionally, Affirm does not charge any late fees.

Afterpay collaborates with stores like Gap and Old Navy to offer a simple 4-payment system. There are no extra costs if you make your payment on time; however, if it is not paid within ten days of the due date, you will be charged the most, which is $8.

PayPal provides a pay-in-four option, accessible online and through its mobile app at Home Depot and Target retailers. This plan does not have interest or late fees.

Zip Co, formerly Quadpay, is a pay-in-four financing service that acts more like a loan, charging an origination fee and interest.  

Stores such as Sephora, Macy's, and Foot Locker offer Klarna. The pay-in-four plan has no interest, but if payment is not received within ten days of the due date, a late fee of up to $7 may be charged.

There are even companies like Uplift, which is for travel websites and functions more like a loan with interest. 

Alternatives to Buy Now, Pay Later

If you're looking for an alternative to BNPL options, there are a few options to consider. A 0% APR credit card can be great if you have good credit. These cards usually have an introductory 15-21 months with no interest charges. They may also offer rewards or sign-up bonuses. A small personal loan could be a good option for those who need more time to pay and have a good credit score. Personal loan terms are generally longer than buy now, pay later options and can be obtained by those with various credit scores. Interest will be charged, but the monthly payments may be more manageable. Both credit cards and personal loans can be reported to bureaus, which may help you to build your credit score.