Home Credit score What is Buy Now, Pay Later and how does it work?

What is Buy Now, Pay Later and how does it work?



  • The Buy Now, Pay Later programs allow you to purchase items without paying for them all at once.
  • When shopping online, you can usually get approved for BNPL within seconds at checkout.
  • However, don’t let BNPL trick you into spending money that you don’t really have.
  • Learn more about Personal Finance Insider loan coverage here.

The holidays are upon us and people are opening their wallets to pay for the festivities – consumers are expected to spend nearly $ 1,000 this holiday season, according to recent data from the National Retail Federation.

If you don’t have all that money to spend up front, an option to delay full payment for gifts is becoming increasingly common with an arrangement called buy now, pay later.

What is buying now, paying later?

Buy Now, Pay Later (BNPL) allows you to purchase items without paying for them all at once. Instead, you pay only a portion of the price up front, spreading the remaining cost over a predetermined number of installment payments. These payments are often interest free and the approval process is quite quick for consumers.

BNPL has become an exponentially more popular option for shoppers, especially those who shop online. Companies like To affirm, After payment, Klarna, and QuadPay all partner with various retailers to offer point-of-sale installment loans (another name for BNPL).

Businesses can limit the amount you can finance through BNPL, and not all purchases will be eligible for this plan.

There are no universal rules for BNPL programs because every business operates differently. However, this is generally what to expect with BNPL:

  • Choose the BNPL option when paying at a participating retailer and get an approval decision in seconds
  • Make a small upfront payment, for example, 20% of the total purchase amount
  • Payment of the outstanding balance in a set number of weekly, bi-monthly or monthly installments (which are usually interest free)
  • Choose to make automatic payments from your debit card, credit card, or bank account, or choose to pay by check

Pros and cons of buying now, paying later

What are the alternatives to buy now, pay later?

  • Save to make your purchase outright. If you are lucky enough to have time to wait to make your purchase, purchasing your item all at once will save you from increasing your total debt and take the stress out of keeping up with your weekly or monthly payments. Set a target amount for your purchase and save a portion of your salary each month to reach your goal.
  • Use a credit card to make your purchase. If the desired purchase is not available through BNPL or is more expensive than what you can handle in monthly installments, you can use a credit card. However, keep in mind that it is generally easier to get approval from BNPL than traditional credit cards.
  • Although credit cards and BNPL allow you to delay payments on purchases, they work differently. With BNPL, you will pay off your item on a fixed schedule, usually over several weeks or months, with minimal to low interest rates. Credit cards allow you to keep a balance indefinitely (although you have to make minimum monthly payments), but interest will accrue until you pay off your purchase.

  • Take out a personal loan to make your purchase. Personal loans work the same way as BNPL in that they are installment loans with a fixed payment schedule and a fixed interest rate. However, personal loans are generally used for larger purchases (the minimum on most personal loans is around $ 1,000), and they have longer repayment terms. Your credit score is an important factor in determining the terms of your personal loan, so you could pay a much higher interest rate on a personal loan than with BNPL if your credit is not in good condition.