Buy Now, Pay Later (BNPL) options are not entirely new. Before the advent of digital payments, stores would allow shoppers to reserve items on layaway, holding the item until the consumer was able to complete all payments for the item.
Today, installment options are more flexible than they once were, enabling consumers to make predictable payments over time while enjoying their purchases right away. Since the pandemic altered the shopping habits of many consumers and drove more people to online shopping channels, digital BNPL options have grown in popularity.
The benefits to consumers are many. Not only do you get the flexibility of paying over time, but you can also potentially make more expensive purchases without significantly altering your budget. This is an especially helpful option during peak shopping seasons like the holidays. In fact, almost half (44%) of consumers said using BNPL is somewhat or very important to determine how much they will spend during the holidays.
What is Buy Now, Pay Later?
Buy Now, Pay Later (BNPL) is a type of short-term loan — often with low or no interest — that enables consumers to purchase items while paying for them in installments over time. BNPL has become an increasingly popular payment option, especially for those making online purchases.
While the essence of buy now, pay later programs are the same, each provider offers its own terms and conditions for installment loans. In general, BNPL works in the following way:
- You make a purchase at a retailer that offers BNPL options and select the option of your choosing at the time of checkout
- Approval is granted or denied in real-time. If you are approved, you pay a small down payment for a percentage of the total purchase amount (down payments vary by provider)
- The remainder of the balance is then paid over a series of payments spaced out over time
- Payment options vary by provider, but you may opt to pay via check, bank transfer, credit, or debit card.
How Is Buy Now, Pay Later Different From Other Payment Options?
BNPL may sound very similar to paying with a credit card, but there are some unique differentiators between the two payment methods. While both enable you to make a purchase while paying off the total amount due over time, credit cards allow you to carry a balance indefinitely while also paying interest on the amount still owed. BNPL, on the other hand, typically charges zero interest or fees; however, you must abide by a fixed repayment schedule that may span over several weeks or months.
While credit cards only require you to pay the minimum amount due each month, BNPL payments are fixed and predictable, meaning you’ll always know the amount you need to pay and when that payment is due. In this way, it is very similar to any other unsecured loan.
Unlike other loans, BNPL providers usually only do a soft credit check to approve you. Soft credit checks do not affect your credit score; however, some providers may do a hard credit pull, which could decrease your score by several points in the short term. Another thing to keep in mind is that not all purchases are eligible for BNPL financing.
Pros and Cons of BNPL Payments
BNPL installment options enable you to pay for purchases over time without accruing interest charges or fees. It can also be very easy to get approved for short-term BNPL loans, even if you have been unsuccessful in applying for other loans. That said, they do not help you build and improve credit in the same way as other payment options or loans might. You should weigh the pros and cons as they apply to your financial circumstances before using BNPL.
- Approval is fast and easy
- Budget-friendly, convenient way to pay for a purchase over a short period of time
- Often low- or no-interest options
- Easy to qualify, even without a great credit score
- No way to earn cash back or other rewards on purchases
- Missing a payment or paying late could result in fees or damage to your credit score
- Payments might be difficult to track
- Do not enable you to build or improve your credit score like other options
Who Are the Top Providers of Buy Now, Pay Later?
Several different companies offer buy now, pay later options — and many more have come on the scene in the wake of the payment option’s success.
Zebit is another BNPL option that offers a free application and fast approval process. Like some others, no FICO report is pulled. Zebit users pay for purchases over 6 months and may qualify for a credit of up to $2,500. With a down payment at checkout, users are able to pay for the remaining balance of their purchase over time.
Venue is a premium marketplace that enables consumers to shop from more than 1 million brand name products with no interest financing. In addition to BNPL payment options, the site offers exclusive discounts and a 30-day money back guarantee.
Klarna is a BNPL option offered at both brick and mortar and online retailers. Shoppers can look for the Klarna logo at the point of checkout, but the provider also offers a retailer hub on its app where you can peruse different brands. Klarna’s Pay in 4 option allows you to pay for purchases in 4 interest-free payments for both online and in-store purchases.
Afterpay’s BNPL option allows consumers to make a down payment on purchases and then spread out the remaining payments over six weeks with no interest. Consumers can manage everything from the Afterpay app, including setting spending limits, managing payments, and tracking favorite retailers. Users can also set up alerts for new offers and launches from their favorite places to shop.
PayPal has also joined the BNPL game with its Pay in 4 option, which allows shoppers to split the cost of their purchase into four payments — one down payment and three remaining payments due every two weeks. This option is also interest-free and has no impact on your credit score. As an option backed by PayPal, a known payments provider, this option is available at millions of merchants and retailers worldwide.
For those on a tight budget, BNPL options provide a flexible, interest-free way to pay for large and small purchases alike. This method of credit is convenient and easier to qualify for than other options, but you should consider the penalties that might be imposed if you are unable to make a payment or make a late payment. Always take care to read the fine print to be sure you understand the terms to which you are agreeing.