Buy now, pay later (BNPL) is a type of short-term financing that allows you to make payments for purchases in installments. The option is usually presented at checkout when you’re buying online and lets you make payment arrangements, sometimes without interest charges. The first payment is usually made at the time of purchase, and then other payments are made over time, usually in predetermined amounts and intervals.
How does buy now, pay later work?
Buy now, pay later works exactly as the name suggests. When you make a purchase, at checkout, you may get an option to pay a smaller amount than the total purchase price and the balance of the item’s price later. If you choose buy now, pay later, you’ll get a short application to complete. The information required for the application includes your name, address, date of birth, Social Security number, and phone number. You also need to provide your preferred payment method.
Your buy now, pay later financier may also do a soft credit pull before approving or denying your application. These soft pulls don’t affect your credit score negatively, however. In rare cases, some BNPL providers may perform a hard credit inquiry that can cause a temporary drop in your credit score. To avoid hard inquiries, make sure you read your BNPL application carefully. It should indicate whether the company will perform a soft or hard inquiry.
After filling out the form, the approval or denial decision is almost instantaneous. If your application gets approved, you’ll make the first down payment, normally a percentage of the overall price. You can make the payment by check or bank transfer. You can also allow deductions from your bank account, debit card, or credit card to make your payments.
Buy now pay later: Pros and cons
Pros
You can split up payments. Splitting up your payments for something and paying for it over time means that expensive items become more attainable. You only need to have the down payment at the time of purchase, and the item will be shipped to you.
No interest or lower interest compared to credit cards. Buy now, pay later financing mostly comes with zero-interest charges – if you make all the payments on time. If you have to pay interest, it will likely be at a lower rate than what you would be charged with a credit card.
Better approval odds. You don’t need the best credit score to qualify. This makes it easy if you are building credit or are recovering from a lower credit score.
Fast approval. After applying for this payment method, you can get a decision in a matter of seconds.
Cons
You don’t get rewards or cashback on purchases: You miss out on some perks that come with using a credit card — like reward points or cashback.
Missing or getting late on a payment can damage your credit score. Buy now, pay later providers don’t report your on-time payments to the credit bureaus, so making all the payments on time doesn’t boost your credit score. But if you miss a payment, you may be hit with penalties and your loan may start accruing interest similar to what a credit card charges. What’s more, your missed payments are referred to the credit agencies, which will ding your credit score.
You have to continue making payments even on returned items. Returning items you purchased through buy now, pay later providers may be a little complicated. While you may still get your money back, the merchant has to first inform the BNPL about the refund (which can take longer). In the meantime, you still have to continue making the payments on your BNPL plan.
Payments may be hard to track, and you risk overspending. If you’re required to make payments over a long period, you might have difficulty keeping track. Paying for something over time can make some pricey items seem more affordable — encouraging you to spend more.
Companies that Offer Buy Now Pay Later
Affirm
Affirm offers customers two types of Buy Now, Pay Later at checkout. You can either choose the short-term, 0% interest offer or the 12-month 10-30% APR option, depending on your creditworthiness. They don’t charge any late fees, prepayment fees, or deferred interest charges.
Affirm has partnered with brands like:
- Nike
- Target
- Pottery Barn
- Expedia
- Adidas
- Best Buy
- Delta Vacations
- Nectar Sleep
- Reverb
- Neiman Marcus
- Walmart
- Peloton
- Pottery Barn
- Purple
- Poshmark
- Saks Fifth Avenue
- ThredUP
- The RealReal
If your retailer hasn’t partnered with Affirm, they (Affirm) can provide you with a virtual card number that you can use to make the purchase. You then pay Affirm back according to the payment plan you’ve chosen.
Afterpay
Afterpay provides its services via its free app. They offer a short-term installment plan where you make purchases using a virtual credit card number. After making the first of four payments, the rest gets spread out over six weeks. Also, Afterpay sets your credit limit for you.
Make sure you make all payments to Afterpay on time. Failure to do so may cause them to suspend your account. You may also accrue late fees that can go up to 25% of the item’s purchase price.
Retailers that accept Afterpay include:
- Anthropologie
- Tory Burch
- Forever 21
- MAC Cosmetics
- Bed Bath & Beyond
- Dillard's
- Urban Outfitters
- Finish Line
- Houzz
- Pier 1
- Ulta Beauty
Klarna
Klarna offers a “Pay in 4” plan that allows you to split your purchase into four installments. If your retailer has not partnered with Klarna, you can do an online purchase through the Klarna app. Skipping or being late for any payments can fetch up to $7 in late fees.
Note that if you’re on a “No Interest If Paid In Full” plan and you miss a payment, Klarna will charge you deferred interest on the entire purchase at a 19.99% APR rate.
You can use Klarna at the following stores:
- Adidas
- Stila
- Lululemon
- Calvin Klein
- GameStop
- Bloomingdale's
- Sephora
- GUESS Factory
- H&M
- Tommy Hilfiger
- Lenovo
- Journeys
- Bed Bath & Beyond
- Macy's
- Reebok
PayPal Credit
PayPal Credit was previously known as Bill Me Later. They offer Buy Now, Pay Later for purchases over $99 without interest if you pay the full amount within six months. PayPal Credit loans are given through Synchrony Bank. Because of that, they do hard credit checks before approval. Failure to finish the installment plan means you’ll pay deferred interest on the entire purchase amount at a 23.99% variable APR rate.
Zip
Zip, previously Quadpay, charges $1 as a convenience fee for its ‘Pay in 4’ plan. You can access Zip through their app. They are available wherever Visa is accepted. Depending on the state you live in, missing a payment will cost you $5, $7, or $10 in late fees. You can use Zip at the following retailers and companies:
- Airbnb
- Bloomingdale's
- Amazon
- WalmartDelta
- Nordstrom
- Instacart
- Macy's
- Nike
- TJ Maxx
- Famous Footwear
- Overstock
- Target
- Ulta Beauty
Sezzle
Sezzle offers an interest-free “Pay in 4” plan spread out over six weeks. It also doesn’t charge late fees, but your account may be deactivated if you miss a payment. Sezzle charges a $10 fee to reactivate a deactivated account. Sezzle is available at thousands of retailers in the US including:
- Target
- Alani Nutrition
- Umbro Premier
- Bentley
- GameStop
- Brandless
- Itzy Ritzy
- Jessica Simpson
- Melt Cosmetics
- Monos
- Lamps Plus
- Wings+horns
Buy now, pay later alternatives
In-store financing
In-store financing may involve using a store credit card (store-branded) which you can only use at a specific retailer. It's classified under deferred-interest financing. This means there’s no interest on purchases for a certain period of time. But if you fail to make the full payment, you must pay any interest accrued in that period.
Credit cards
Unlike buy now, pay later financing, credit cards come with rewards such as points, miles, and cashback. While credit cards generally charge interest, you can avoid it using a 0% introductory purchase APR offer or simply paying your balance in full each month.
Another benefit of using credit cards instead of Buy Now, Pay Later is that a credit card can give you more time to repay your loan with introductory offers lasting 6, 12 or even 15 months. Even if you don’t take advantage of an introductory purchase APR, you can still choose to pay your purchase off over time. If you can stomach the interest charges, a credit card may be a better alternative if a retailer doesn’t accept Buy Now, Pay Later.
Where can you use buy now, pay later?
BNPL payment options are available at the retailers we mentioned above but are also offered by many other online retailers. If you want to know about a BNPL option with a specific retailer, you can visit their website FAQs, chat with a customer service representative or simply start an order to see if the option appears at checkout.