By Richard M. Simonds, Ed.D, MSW, BCC
What Is Buy Now Pay Later?
Buy Now Pay Later (BNPL) allows shoppers to pay for goods and services (“products”) in small installments over set periods, usually periods lasting from a few weeks to several months. It’s the standard approach with traditional credit cards, and also with large investments (e.g., a car or condo) that typically require a first payment at time of purchase, plus additional monthly payments deducted from a linked bank account.
Now, there are also third-party BNPL companies that, in partnership with vendors, offer interest-free payment plans to individual buyers. These BNPL services enable rapid approval at time of checkout, often taking mere seconds to complete credit assessments and set up a payment plan. The convenience of this approach has contributed significantly to BNPL’s growth as a payment method of choice, particularly among younger consumers.
Features
- For consumers, the primary benefit is financial flexibility. By spreading payments over time, consumers can make larger purchases without depleting immediate cash reserves or maxing out credit cards, allowing them to keep a consistent budget.
- While credit cards typically charge annual percentage rates of 15–25%, most BNPL arrangements are zero-interest. This is a significant financial advantage, especially on larger purchases.
- BNPL services often have less restrictive approval criteria, focusing on banking history rather than official credit scores. This makes BNPL a good choice for many individuals who have limited credit history, or who have been turned down for credit cards.
Considerations
- Although BNPL services typically don’t charge interest, penalties for missed or late payments range from $5 to $35 per occurrence. These fees can accumulate quickly, often exceeding the cost of traditional credit if several payments are delayed.
- Credit impact varies significantly among BNPL providers. Consumers concerned about their credit profiles should know their chosen provider’s policy on reporting payment history to credit bureaus: some providers report only missed payments, potentially damaging credit scores.
- Consumer protection features also differ. Some BNPL services offer purchase protection, return policies, and dispute-resolution services similar to credit cards. Others provide minimal consumer protection, a particular concern for anyone selecting BNPL for significant purchases.
- The ease of obtaining BNPL credit can lead to budget overextension. Unlike traditional credit cards with spending limits, BNPL services may approve numerous separate transactions, potentially leading to multiple payment plans across different providers—and to unmanageable payment obligations.
Is Buy Now Pay Later Right for Me?
Questions to ask yourself:
- Can I afford the full purchase amount? Even if the individual installments look affordable, will they all fit into my budget over the coming months?
- Can I be sure of making all payments on time?
- What, if any, impact will this have on my credit score? Am I all right with this company’s credit-reporting policy?
BNPL Options
In this section, we share information on a few buy-now-pay-later companies. We do not endorse any specific provider, and we recommend that you always research the options before deciding what’s right for you.
- Afterpay, one of the earliest BNPL platforms, focuses primarily on fashion, beauty, and lifestyle purchases. It uses a four-payments-over-six-weeks structure, emphasizes quick approval processes, and targets millennial and Generation Z consumers. Afterpay’s current merchant network includes Target, Sephora, and numerous online fashion brands.
- Klarna offers a comprehensive suite of payment options, including four-payment plans, longer-term financing with interest, and a “pay in 30 days” option. This flexibility allows Klarna to serve a broad range of consumer preferences. The service has expanded significantly in the United States, and maintains strong partnerships with major retailers across various industries.
- Affirm stands out for offering longer-term payment plans—typically three to 24 months—with transparent pricing that may include interest charges for extended payment periods. This approach allows Affirm to facilitate larger purchases, such as furniture, electronics, and travel bookings.
- Sezzle, like Afterpay, focuses on teenage-to-thirtysomething consumers. However, Sezzle puts more emphasis on responsible spending, offering financial education resources and other tools to help consumers manage their payment obligations. Sezzle’s merchant network includes a mix of established retailers and emerging brands.
Other, up-and-coming BNPL providers:
- Splitit uses existing credit card limits to create installment plans, without requiring credit checks.
- Zip (formerly Quadpay) emphasizes in-store payment capabilities alongside online transactions.
Conclusion
The rapid growth of BNPL services reflects today’s consumer preferences for transparent, accessible, and convenient payment options, which align with how younger generations use their money. The benefits can be substantial, including improved cash flow management, interest-free payment options, and increased purchasing power. However, late payment fees, credit impacts, and overextension are concerns that must be weighed.
Consumers should approach BNPL services with clear understanding of their financial obligations and their ability to meet payment schedules. By researching and understanding these products, you will be ready to make informed decisions about purchasing them.