Buy Now, Pay Later has become one of the most popular ways to make large purchases. What is it, how does it work, and what should you know when you use it?

What is it?

Buy Now, Pay Later (BNPL) is a service that lets you buy your items and pay in installments later rather than all at once. Some of the most popular BNPL services are Affirm®, Afterpay™, and Klarna ™, but they all typically work the same way.

How it Works

When shopping online, there might be a BNPL option during your checkout process. Once you select it, approval is generally granted within seconds. You will be asked to make a down payment, usually around 25% of the total amount. You will then pay the rest in a series of payments over a predetermined period of time.

The Benefits of BNPL

  1. BNPL offers an accessible way to make purchases. If you are unable or unwilling to make large purchases in one payment, you can stretch the payment out over a period of time.
  2. BNPL services usually offer low-interest or even interest-free payment plans.
  3. Approval is typically granted within seconds of applying.
  4. Good credit is not usually necessary for approval.

The Potential Drawbacks of BNPL

  1. The appeal of BNPL can lead to impulse buying.
  2. Missing or late payments can accrue late fees and even affect your credit score.
  3. BNPL can make receiving a refund on defective or missing products challenging.
  4. Some BNPL services make it difficult to track payments.
  5. It can be easy to get carried away using BNPL services, meaning you can have multiple monthly payments at once.

Tips for using BNPL

  • Consider whether the purchase is a need or a want. Can you wait to purchase this until you can pay in full?
  • Always read the terms of service for any BNPL services you use.
  • Make sure you review the payment plan before confirming. Be certain you will be able to make each payment on time.