What Is Buy Now, Pay Later, and Is It a Good Idea?
Buy now, pay later (BNPL) lets you break up retail purchases into manageable chunks. Under most plans, you’ll pay 25% down, with your balance due in four equal installments. BNPL companies primarily run via mobile app, but you can often use it in store, too.
Most BNPL apps don’t charge interest on short-term loans. Still, they aren’t a one-size-fits-all solution. BNPL can lead to overspending since they’re so easy to use. At the same time, BNPL can be a helpful budgeting tool — but you have to be strategic.
What is buy now, pay later?
Buy now, pay later allows you to break up retail purchases into installments. This is also called point-of-sale financing, and it’s offered by financing companies like Affirm and Klarna.
Buy now, pay later has exploded in popularity in recent years. According to our monthly LendingTree BNPL tracker, 40% of people surveyed said they plan to take out at least one BNPL loan in the next six months.
Under the most common BNPL plan (Pay in 4), you’ll pay 25% down on your purchase. Then, the BNPL company finances the rest. You’ll pay off your balance in three more interest-free installments over the next six weeks.
On June 1, you pay $50, finance the rest through BNPL and get your sunglasses.
On June 15, your second $50 payment is due.
On June 29, your third $50 payment is due.
On July 13, your fourth and final $50 payment is due.
Most BNPL companies require that you sign up for automatic payments. So, as these payments are due, the BNPL company will withdraw them from your bank account.
Under most circumstances, BNPL companies only run a soft credit hit (unless you’re opting for monthly financing). But while BNPL apps have looser eligibility requirements, approval isn’t guaranteed.
You don’t have a traditional spending limit under BNPL. Instead, you have to apply for approval for each transaction. That means the BNPL company could refuse to finance a patio set with a $1,000 price tag. But, based on your credit, maybe it’ll approve you for a $300 grill.
Some BNPL companies offer longer financing terms for larger purchases (usually three to 60 months). Unlike Pay in 4, these installment loans typically carry interest.
Notably, BNPL comes with the same borrower protections as credit cards. In May 2024, the Consumer Financial Protection Bureau ruled that BNPL lenders are credit card providers. That means you can dispute charges and are entitled to a refund for returned purchases.
| Pros | Cons |
|---|---|
No interest. BNPL apps are generally interest-free (unless you choose monthly financing). Makes larger retail purchases more manageable. Instead of paying up front, you could use a BNPL to budget for that new mattress or lawn mower you need. Can help you stretch between pay days. If you need groceries but are waiting on your paycheck, a BNPL app could be a solution (just reserve it for emergencies). No credit check. In most cases, BNPL apps only require a soft credit hit (which won’t impact your credit). | Can lead to impulse buys. It can be easy to overspend because purchases look less expensive in installments. On-time payments probably won’t help credit, but late payments will usually hurt it. Many BNPL lenders only report late payments to the credit bureaus. Might rack up fees. Some apps charge multiple fees for late or rescheduled payments. Can cause a cycle of debt. Taking out more than one loan at a time means multiple automatic withdrawals at different times of the month. Risk of overdrafting. You could be on the hook for an overdraft fee if you don’t have enough in your account when your payment is due. |
How does buy now, pay later work?
Not all retailers partner with BNPL services, but lots do. You can see what stores and brands each BNPL partners with by visiting its site. Outside of tangible goods, you might even be able to use BNPL to pay for personal services, like hair appointments.
Find out which buy now, pay later app is right for you, and download it. From there, you can use BNPL in two ways: online and in-store (when available).
Online
You can use BNPL to shop via mobile app as well as desktop. Some (like Klarna) also offer a browser extension that can help you compare prices and find digital coupons.
Most BNPL websites have their own online stores that carry partner brands. You can also pay by BNPL if it’s offered at checkout on a retailer’s site. Amazon will give you the option of paying with Affirm as long as you have at least $50 worth of eligible products in your cart.
When you choose BNPL as your payment option, you will have to answer some questions and agree to a soft credit check. At that point, the company will approve or deny your purchase based on your credit and payment history.
In-store
First, find out if the store you’re shopping at accepts BNPL. If it does and you don’t already have that BNPL company’s app, download it.
When you’re in the store, use the app to apply for a one-time-use virtual card. This sounds trickier than it is, but the app will give you step-by-step instructions. If you’re approved, add the card to your digital wallet (Apple Pay or Google Pay). Then, use it to pay like you would any other purchase.
When is buy now, pay later a good idea?
- When you’ve got a small to moderate emergency expense: It’s best to have an emergency fund, but BNPL can get you out of a bind. For example, you could use BNPL to split a set of new tires into four $250 payments rather than paying $1,000 up front.
- When you’re budgeting for a splurge or expensive item: It’s OK to treat yourself once in a while, but remember — a splurge isn’t an impulse buy. With mindful and occasional use, a BNPL app can be just another tool in your personal finance arsenal.
When is buy now, pay later a bad idea?
- When you’re regularly using it for everyday living expenses: It might not feel like it, but you’re taking out a loan every time you use a BNPL app. Do what you can to avoid going into debt for things like groceries and household items. Instead, take a close look at your expenses. You might be surprised how much breathing room the right budgeting method could give you.
- When you start buying stuff you don’t really need: Our BNPL tracker found that 57% of people who used BNPL did so to buy clothing, shoes and accessories. If you find your doorstep flooded with packages on the daily, you might want to uninstall.
What apps can you use to buy now, pay later?
Affirm
APR
- 0.00% for Pay in 4
- 0.00% – 36.00% for monthly installments
Repayment terms
- Four installments (one every two weeks) for Pay in 4
- 3 to 60 months for monthly financing
Fees: None
Afterpay
APR
- 0.00% for Pay in 4
- 0.00% – 35.99% for monthly financing
Repayment terms
- Four installments (one every two weeks) for Pay in 4
- 6 to 12 months for monthly financing
Fees: Maximum late fee of $68, depending on how late you are
Klarna
APR
- 0.00% for Pay in 4
- 0.00% for Pay Later
- 0.00% – 33.99% for monthly financing
Repayment terms
- Four installments (one every two weeks) for Pay in 4
- 30 days for Pay Later
Fees: Up to $7 late payment fee
PayPal
APR
- 0.00% for Pay in 4
- 9.99% – 35.99% for monthly financing
Repayment terms
- Four installments (one every two weeks) for Pay in 4 and six
- 12 or 24 months for monthly financing
Fees: None
Sezzle
APR
- 0.00% for Pay in 2
- 0.00% for Pay in 4
- 5.99% – 34.99% for monthly financing
Repayment terms
- Half down and half due in two weeks for Pay in 2
- Four installments (one every two weeks) for Pay in 4
- 3 to 48 months for monthly financing
Fees
- Up to $15.00 late payment fee
- $7.50 fee for rescheduling payments
- $5.00 failed payment fee
- $2.50 convenience fee to repay via debit or credit
Zip
APR: 0.00%
Repayment terms: Four installments (one every two weeks) for Pay in 4
Fees
- Up to $7.50 for installment charge
- Up to $7 late payment fee]
- $2.00 payment rescheduling fee (only applies if you’ve already rescheduled that month)
Buy now, pay later alternatives
Credit card
When it could be a worse option: If you have a tendency to overspend or only need to borrow for a one-time purchase.
In theory, credit cards can help you split up purchases, similar to BNPL apps. But unless you’re using a 0% APR card, you shouldn’t carry a balance from month to month. Otherwise, you’ll rack up interest. BNPL apps are usually interest-free for the first six weeks.
Rewards credit cards are a different story. If you can pay your balance in full each month and earn points or miles as you spend, a credit card is better than a BNPL app. Some apps have a reward system, but many (like Affirm, Afterpay and Klarna) discontinued their rewards programs in early 2024.
Personal loan
When it could be a worse option: If you need to split up smaller purchases on a more regular basis.
Personal loans come as a lump sum of cash, and you can use them for anything — including everyday purchases. Personal loans also come with interest and fees, so they don’t make sense for smaller-ticket items.
On the flipside, personal loans generally range from $1,000 to $50,000 (sometimes more). If you have a large expense (like a home improvement project), a personal loan could help. Just know that bad credit could mean interest rates of 36.00% or higher.