What Is Buy Now, Pay Later (BNPL)?

Buy Now, Pay Later (BNPL) is a short-term financing option that allows you to purchase items and then pay for them over a set period of time, usually in interest-free installments.

Some popular BNPL services include Klarna, Afterpay, and Affirm, among others. It’s like the old-fashioned “layaway,” but you get the item immediately instead of having to pay it off first.

BNPL is especially popular among younger generations. Gen Z consumers are more likely to use an alternative payment method like BNPL over other methods.

As the cost of living rises, more individuals are turning to BNPL loans to manage the increased prices. Traditionally, you’d find BNPL loans at furniture stores and beauty and apparel stores like Lululemon, Sephora, and Target. But now, retailers like Instacart, Delta, and even grocery stores are beginning to use them.

How BNPL works 

Buy Now, Pay Later lets you buy items and pay for them over time. To qualify, you usually sign up with a BNPL provider like Afterpay, Klarna, or Affirm when checking out online.

You choose a payment plan, often with several small payments spread over weeks or months. Then, you pay the BNPL provider in installments, not the store.

Most BNPL loans are interest-free if you pay on time. For example, say you’re shopping online for a new jacket that costs $100. At checkout, instead of paying the full amount, you see an option to use Afterpay (a BNPL provider). You get approved quickly and split the $100 into four payments of $25 each, paid every two weeks.

So, you get the jacket right away and pay only $25 today. Then, you pay another $25 in two weeks until the full $100 is paid. If you pay on time, you won’t pay any extra fees. But if you’re late, there might be a fee or interest.

Most BNPL providers conduct a “soft” credit inquiry when you choose their service. A soft inquiry doesn’t impact your credit score.

Some providers might conduct a hard credit inquiry if you need to finance a larger purchase. A hard inquiry can temporarily reduce your credit score by a few points and will appear on your credit report.

Alternatives to buy now, pay later 

When inflation is on the rise or the economy is taking a downturn, it’s tempting to use Buy Now, Pay Later to spread out payments. But there are other options to consider if you need more time to pay or are making a larger purchase. Here are three alternatives to BNPL:

BNPL vs. personal loans

BNPL is built for small, short-term purchases — think $50 to $1,000. But if you’re making a bigger purchase or want a longer repayment timeline, a personal loan* could be a better fit.

With a personal loan, you borrow a fixed amount and pay it back in monthly installments over a set term, usually with interest. Unlike BNPL, personal loans often come with higher borrowing limits and longer repayment periods, which can help with budgeting if you need more time.

If you qualify for a lower interest rate (especially with good credit), a personal loan can be a cost-effective option. Some lending platforms even let you check your rate without affecting your credit score.

That said, personal loans are still debt, and you’ll want to make sure you can comfortably afford the payments before applying.

BNPL vs. 0% APR credit cards

Some credit cards offer a 0% introductory APR for a set period — often 12 to 21 months. That means you can carry a balance during that window without paying interest, as long as you make the minimum payment each month.

Compared to BNPL, 0% APR cards often offer more flexibility on when and how you repay. But once that intro period ends, any remaining balance will start accruing interest at the card’s regular rate — which can be 20% or higher.

0% APR cards can be a good BNPL alternative if you’re confident you can pay off the purchase within the promo period.

BNPL vs. saving up for the item

It might not be flashy, but saving up is still one of the safest (and smartest) ways to buy what you need. By paying in full with cash, you avoid interest charges, late fees, and any potential dings to your credit. You also minimize your chances of making financial mistakes, like taking on too much consumer debt and falling behind on monthly bills. 

In fact, minimizing BNPL usage is one of the many habits of debt-free people.

If you’re saving up for something specific, consider keeping the money in a high-yield savings account to earn interest while you wait. It takes patience, but it ensures you’re spending within your means — without borrowing against future income.

Advantages and disadvantages of BNPL 

Buy Now, Pay Later has become an increasingly popular payment option for shoppers. But like any type of loan, BNPL has its upsides and downsides. Here’s a closer look at the pros and cons:

Advantages of BNPL

Can take items home immediately 

With BNPL, you can enjoy or use the products immediately without having to pay the full price upfront. People have used BNPL for everything from groceries to baby strollers to Peloton bikes.

Although it’s mostly used for online shopping, providers like Afterpay have digital cards you can add to your mobile wallet for in-store purchases.

Simple repayment structure 

BNPL offers a structured payment plan that is easier for some consumers to understand. 

Instead of dealing with minimum credit card payments and confusing interest rates, your purchase is automatically split into smaller, scheduled amounts. This can make budgeting easier for some people.  

Usually interest-free 

Many BNPL platforms provide interest-free periods, especially if you pay off the amount within the specified time. 

This can save money compared to traditional credit methods that might charge interest from day one. 

Disadvantages of BNPL 

May lead to overspending 

With the ease of BNPL, buying more than you can afford can be tempting. This can lead to accumulating debt if not managed responsibly. 

That’s not to say that BNPL services are inherently bad. They’re not. But they can wear on your financial health if you take on too many loans or don’t pay them off on time.

Must use autopay 

Most BNPL loans require you to enroll in autopay for loan repayments. While this can help ensure you make your payments on time, it can also cause you to overdraft your bank account if you have insufficient funds. 

Late fees and higher interest 

If you miss a payment or don’t pay off the full amount within the interest-free period, you might be hit with hefty fees or a higher interest rate. 

For example, Afterpay’s late fee can be up to 25% of your purchase amount. This can make the initial purchase more expensive in the long run. 

May or may not build your credit 

Some BNPL providers now report on-time payments to credit bureaus, which could help you build credit over time. But many still don’t. If building credit is important to you, look for providers that report positive payment history. 

Remember: missed payments or defaults can negatively impact your credit score with any provider if your account gets turned over to collections. This can make it harder to qualify for loans or other financial products in the future. 

How BNPL affects credit scores

Until recently, most Buy Now, Pay Later providers didn’t report payment history to credit bureaus. That’s starting to change.

Now, major BNPL companies like Affirm and Klarna began reporting both on-time and missed payments to credit bureaus like Experian and TransUnion. This means BNPL can now help (or hurt) your credit, depending on how you use it.

Here’s what to know:

• Soft inquiries are still the norm. Most BNPL providers do a soft credit check to approve your loan, which doesn’t impact your credit score.
• Hard inquiries may apply for large purchases. Some providers may run a hard credit check, especially for longer-term financing options.
• On-time payments may help your credit, but only if your provider reports to the bureaus. Not all do.
• Late payments can hurt your credit. If you miss a payment and your account goes to collections, it can show up as a delinquency on your report and lower your score. 

So if you’re using BNPL, make sure you understand how your provider handles credit reporting, and always pay on time.

How to use buy now, pay later responsibly

Follow these tips to use BNPL responsibly: 

• Understand the terms: Before using BNPL, thoroughly read the terms. Know when each payment is due and any potential fees. 
• Stay within budget: BNPL loans make it easy to act on impulse purchases. Only buy what you can comfortably afford to repay. 
• Set reminders: Ensure timely payments by turning on autopay (if it’s optional), setting calendar alerts, or using apps to remind you of due dates. 
• Monitor credit: Periodically check your credit report to ensure BNPL accounts are correctly reported (if they’re reported at all) and to catch any potential errors. 

The future of shopping: Buy now, pay later  

Buy Now, Pay Later is more than just a shopping trend; it looks like it’s here to stay. As you navigate the digital shopping realm, be aware of its implications on your financial health.

Just because BNPL makes it easy to purchase now doesn’t mean you should overextend yourself. Make sure you can afford the bi-weekly payments. 

Remember, BNPL is just one of many options. If you’re considering larger purchases or consolidating debts, perhaps a personal loan is the right choice.

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*All personal loans made by WebBank.