“Buy now, pay later” options can be very tempting – especially for expensive purchases or those that don’t quite fit into your budget. In the past, when a consumer didn’t have enough money to cover a purchase, they’d typically turn to a credit card. Today however, “buy now, pay later” (BNPL) tools like PayPal Credit, Afterpay, and Affirm, are becoming increasingly popular and are popping up on e-commerce shopping sites around the world. The concept is simple: you spread out the cost of your purchase over time, typically with no interest. Many consumers like this convenience, and if there's no interest building up, why not spread payments out and avoid spending a lump sum all at once?
Unfortunately, many shoppers who utilize BNPL programs don’t fully understand how they work. The truth is that while they may be the right choice for some, you should evaluate the pros and cons before clicking that “buy now, pay later” button. Here are some things to consider:
You Are Taking Out a Personal Loan
When using a BNPL program, you may assume you’ll be making payments directly to the merchant, given that the offer appears as a payment option on their website. However, you aren't making an arrangement with the merchant at all. What you’re essentially doing is taking out a short-term loan from a third-party vendor who pays the merchant on your behalf at the time of purchase. No matter how small the purchase may be, it is still a loan that you are agreeing to pay back.
The seemingly casual nature of BNPL offers can disguise the fact that they are indeed loans. BNPL loans may sound great - no fees, no interest, no credit card debt - but not all plans are the same. Many BNPL programs are customized for specific retailers with different repayment schedules, and possible interest and penalties. Whether you are using a BNPL option because you are short on cash or just because it sounds enticing, it is important to review all of the details just like you would for a loan from a bank or lender. Even if it seems like a small amount, if for some unforeseen reason you are not able to pay it back there could be serious negative impact to your personal finances.
It Could Impact Your Credit
Because consumers often think that BNPL is just another payment option from the merchant, they may not realize that if a payment is late or missed, it can appear on their credit reports and potentially lower their credit score. And missed or late payments will stick with you for a while, appearing on your credit reports for up to six years.
Recent research shows that 45% of BNPL users missed a payment in the last year. Of that 45%, 48% incurred fees, and 56% said missing a payment made it difficult to pay back other debt that they owed.
Common BNPL Options
The most popular buy now, pay later companies include:
• PayPal Credit (formerly Bill Me Later)
• Afterpay
• Affirm
• Klarna
Afterpay is one of the only BNPL companies that does not charge interest on late payments, but they do require a debit or credit card number so they can automatically obtain any missed payments from your account. The remaining top providers charge interest on late payments, as well as late fees. Affirm also charges interest on all purchases from the outset.
| BNPL Service | Interest Rate | Late Fees |
| Affirm | 15% to 30% depending on term agreement | None |
| Afterpay | 0% | Up to 25% of initial order value |
| Klarna | 19.99% if loan is not paid off in 4 payments | Up to $7.00 per payment |
| PayPal Credit | 23.99% if loan is not paid after 6 months after initial purchase | Up to $39.00 per payment |
It’s important to remember that BNPL providers offer different repayment options. Some may also have different offers tailored for specific merchants. As a result, the terms and conditions could vary even if the provider is the same. Because of this, consumers should read the fine print each time they utilize BNPL even if they have used that particular service before.
Typical BNPL payment options include:
• Pay in 30 days. The consumer has 30 days to return the purchase or pay the balance in full. If the item is not returned and the balance is not paid within 30 days, interest and late fees may apply.
• Installments. You spread out the purchase price by paying in several installments. The actual installments may vary by provider, so you shouldn’t assume that the payments will be monthly or equal. The first payment is usually due at the time of purchase, but you should read all of the fine print to determine exactly what the repayment schedule will look like.
• Financing. With BNPL options like Affirm, you can spread your payments over more than six months. There may be an introductory or promotional offer with zero interest, but otherwise, companies typically charge interest on the unpaid balance, just like a credit card.
BNPL companies may offer additional perks such as buyer protection or refund guarantees. Again, you should read the terms and conditions in full before buying with any BNPL option, to ensure you understand exactly what you’re agreeing to.
Is BNPL the Right Option for You?
A BNPL payment method may be right for you if:
• You do not qualify for a credit card. Most BNPL companies do not do a hard credit check, so they are typically easier to qualify for than a credit card.
• You want to spread out the payments on a zero-interest option. Most BNPL offers allow you to pay over time without accruing interest, if you make your payments on time, so they can be a convenient way to pay. However, it’s important to remember that terms will vary by provider, and some buy now, pay later companies may charge interest, late fees, or other penalties.
• The purchase is essential but would otherwise max out your credit card. Maxing out credit cards can hurt your credit score, so if the item is essential a BNPL may be a better option. However, racking up additional debt when you’re already close to your credit limit is typically not a smart option. Be sure you will be able to make your payments on time, otherwise late payments will hurt your credit score as well. A better bet is to budget for necessary purchases, and ensure you have ample savings to pay for unexpected costs that may arise from time to time.
You may want to avoid using BNPL if:
• You aren't sure if you can repay the balance on time.
• You have a credit card and can pay the balance in full within the cycle period.
• Your credit card offers you purchase protection, cashback, or rewards.
• You are struggling to get out of credit card debt and are currently only making minimum payments on your existing cards.
• You have the necessary funds to pay for the purchase now.
Frequent users of BNPL programs see them as a way to help manage their finances. However, they may not be the best option if you have difficulty staying on a budget or curbing your spending. If you do decide that a BNPL payment option is right for you, just be sure to read through all of the terms and conditions beforehand so you won’t end up with any surprise fees, charges, or damage to your credit score.
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