What Is Buy Now Pay Later? (Explained with Pros & Cons)

When it comes to making big purchases, most people want the convenience of paying for them over time. That’s where buy now pay later services (BNPL) come in. These services allow you to make a purchase and spread the cost out over several months or even years, without accruing any interest charges.

Sounds like a great deal, right? Well, there are both pros and cons to using buy now, pay later services.

In this article, we’ll explore what buy now, pay later is, how it works, and some of the advantages and disadvantages of using it.

So let’s Get Started !!!

What Is Buy Now Pay Later?

Buy now, pay later is a popular financing option that allows consumers to purchase items now and pay for them over time. This type of financing is often used for big-ticket items, such as furniture or appliances, but can also be used for smaller purchases.

There are a few different ways to arrange buy now and pay later financing, but the most common is to spread the cost of the purchase over a set period, with monthly payments.

Some companies may also require down payment upfront. Buy now, pay later plans can be a great way to finance a large purchase without having to pay for it all at once.

However, it’s important to read the terms and conditions carefully before signing up for any type of financing plan.

History of Buy Now, Pay Later

The history of buy now, pay later can be traced back to the early 19th century when department stores began offering their customers the option to finance their purchases.

At first, these plans were only available to customers with good credit, but they eventually became available to everyone.

In the early 21st century, fintech companies began offering buy now, pay later plans as an alternative to traditional credit cards.

How Buy Now, Pay Later Works.

Have you ever been at the checkout counter, only to realize that you don’t have enough cash to cover the cost of your purchase?

If so, you’re not alone. In fact, according to a recent study, more than half of Americans have experienced this type of situation. Fortunately, there’s a solution: buy now, pay later (BNPL) plans.

With BNPL plans, you can make a purchase today and spread the cost over a series of payments. Typically, there’s no interest or fees charged on these plans, as long as you make your payments on time.

This makes them an attractive option for people who want to avoid paying interest on their purchases.

Let’s understand this with an example,

Suppose you want to buy a new sofa that costs $1,000. With a BNPL plan, you might make a down payment of $100 and then pay off the remaining balance over 12 months.

Each month, you’d make a fixed payment of $75. At the end of the 12 months, you’d have paid off the sofa in full and would own it outright.

Types of BNPL Loans

Generally, there are two types of BNPL loans:

Loans with interest: These loans typically have lower interest rates than traditional credit cards. However, if you don’t make your payments on time, you may be charged late fees or additional interest.

No-interest loans: These loans don’t accrue any interest, as long as you make your payments on time. Here the merchant pays a fee to the lender, rather than the borrower.

Both types of loans have their own set of pros and cons, so it’s important to compare them before choosing one. For example, if you’re confident that you can make your payments on time, a no-interest loan may be the better option.

On the other hand, if you’re worried about making late payments, a loan with interest may be a better choice, as it will give you a grace period before fees or additional interest is charged.

Differences Between Third-Party and Credit Card BNPL Offers

Third-party BNPL offers are typically from companies such as PayPal, Klarna, or Afterpay. Credit cards BNPL offers are from the credit card issuer, such as Visa or Mastercard.

Third-party BNPL offers tend to have more relaxed eligibility requirements than credit card BNPL offers. For example, you may be able to qualify for a third-party BNPL offer with less than perfect credit.

However, credit cards BNPL offers typically have lower interest rates and fees. Apart from that, credit card BNPL offers may also offer rewards points or cashback on your purchases.

So, which one should you choose? It depends on your individual needs and circumstances. If you have good credit, a credit card BNPL offer may be the better option.

But if you have less-than-perfect credit, a third-party BNPL offer may be a better choice.

Advantages of BNPL

There are several advantages to using a buy now, pay later plan:

No interest or fees: As long as you make your payments on time, you won’t be charged any interest or fees. This makes BNPL plans an attractive option for people who want to avoid paying interest on their purchases.

Convenient: BNPL plans are a convenient way to finance a purchase. You can make your purchase today and spread the cost over a series of payments.

Flexible repayment terms: BNPL plans typically have flexible repayment terms. This means you can choose a plan that fits your budget and financial situation.

No Hard Credit Check: Some BNPL plans don’t require a hard credit check. This means you can apply for a plan even if you have less-than-perfect credit.

Available to less-than-perfect credit people: As mentioned above, some BNPL plans are available to people with less-than-perfect credit. This makes them a good option for people who may not be able to qualify for traditional loans or lines of credit.

Help to improve credit score: If you make your payments on time, you can use a BNPL plan to help manage and improve your credit score. The impact on your score will vary depending on the type of plan you choose.

Help to manage Cashflow: BNPL plans can help you manage your cash flow by allowing you to spread the cost of a purchase over a series of payments.

Disadvantages of BNPL

There are several advantages to using a buy now, pay later plan:

Some come with fixed fees: Some BNPL plans come with fixed fees, such as an account-keeping fee or a late payment fee. These fees can add up, so it’s important to check the terms and conditions before signing up for a plan.

You may be tempted to overspend: It’s important to remember that a BNPL plan is a form of credit. This means you may be tempted to overspend and end up in debt. It’s important to only use a BNPL plan if you’re confident you can afford the repayments.

Your purchase may not be protected: If you use a BNPL plan to finance a purchase, it’s important to remember that your purchase may not be protected by consumer rights laws. This means you may not be able to get a refund if the item is faulty or doesn’t live up to expectations.

Terms may vary: The terms and conditions of BNPL plans can vary depending on the provider. This means it’s important to read the terms and conditions carefully before signing up for a plan.

Watch Out for These Buy Now, Pay Later Traps

When you’re looking for a way to finance a purchase, buy now, pay later plans can seem like a good option. But before you sign up, it’s important to be aware of the traps these plans can have.

Here are some things to watch out for:

Fixed fees: Some BNPL plans come with fixed fees, such as an account-keeping fee or a late payment fee. These fees can add up, so it’s important to check the terms and conditions before signing up for a plan.

Minimum spend: Some BNPL plans require you to spend a minimum amount each month. This means you could end up paying interest on your purchase if you don’t meet the minimum spend.

Promotional offers: Some BNPL plans come with promotional offers, such as 0% interest for a certain period of time. These offers can be tempting, but it’s important to make sure you understand the terms and conditions before signing up.

Late payment fees: If you don’t make your payments on time, you may be charged a late payment fee. This can add up, so it’s important to make sure you can afford the repayments before signing up for a plan.

How to Avoid the Traps

The best way to avoid the traps of buy now, pay later plans is to be aware of them before you sign up for a plan.

Here are some things to keep in mind:

Check the terms and conditions: Before you sign up for a plan, make sure you understand the terms and conditions. This includes any fees, charges, or minimum spend requirements.

For example, some plans have a minimum spend of $200 per month. This means you could end up paying interest on your purchase if you don’t meet the minimum spend.

Make sure you can afford the repayments: BNPL plans are a form of credit, so it’s important to make sure you can afford the repayments before you sign up for a plan.

For example, some plans have a late payment fee of $10. This means you could end up paying $120 in fees if you miss 12 payments.

Read the fine print: Be sure to read the fine print before signing up for a plan. This includes any promotional offers, as well as the terms and conditions of the plan.

For example, some plans offer 0% interest for the first 12 months. But after that, the interest rate will jump to 21.99%.

By following these tips, you can avoid the traps of buy now, pay later plans and find a financing option that works for you.


Popular BNPL Companies

Here are some of the most popular BNPL companies:

Affirm:

Affirm is a popular BNPL company that offers payment plans with varying terms. You can choose to make monthly or bi-weekly payments, and the company offers a 0-30% APR. Affirm Loan Services, LLC is licensed by the Department of Financial Protection and Innovatio in California.

Even if any retailer is not on the list of partner retailers, you can still use affirm to finance your purchase using the virtual card.

Klarna:

Klarna is a Swedish company that offers BNPL services in the United States. It partners with many retailers, including H&M, Asos, and Sephora. Klarna offers two payment options: pay in 4 interest-free installments or spread your payments over 6 to 36 months with a variable APR of 19.99-29.99%.

Afterpay:

Afterpay is an Australian company that is now available in the United States. It partners with many retailers, including Ulta, Forever 21, and Ann Taylor. Afterpay offers two payment options: pay in 4 interest-free installments or spread your payments over 6 to 36 months with a variable APR of 19.99-29.99%.

PayPal Credit

Previously known as Bill Me Later, PayPal Credit is a BNPL service offered by the popular payment company PayPal. It can be used anywhere that PayPal is accepted, which includes many online retailers.

If your purchases of $99 or more, you can choose to pay over 6, 12, or 18 months without any cost. For purchases under $99, you will need to pay the full amount at once.

PayPal Credit does not directly offer a line of credit, inserted it is issued by Synchrony Bank.

Sezzle:

Sezzle is a BNPL company that is available in the United States and Australia. In the US, it partners with retailers such as Target, Forever 21, and Nike. Sezzle offers two payment options: pay in 4 installments over 6 weeks or spread your payments over 6 to 36 months. There are no costs or fees associated if you make your payments on time.

Zip:

Zip is an Australian company that offers BNPL services in the United States. It partners with many retailers, including Macy’s, Samsung, and ASOS. Zip offers two payment options: pay in 4 interest-free installments or spread your payments over 6 to 36 months.

You have to  25% of the total cost of the purchase up front and the remaining cost is split into three payments. There are no interest or fees charged as long as you make your payments on time.

Bread:

Bread is a BNPL company that offers to finance for online purchases. It partners with many retailers, including Bed Bath & Beyond, Mattress Firm, and Wayfair. The bread offers two payment options: pay in 4 interest-free installments or spread your payments over 6 to 36 months.

Read More: How to pay off credit card debt

Credit Card Plans that Offer BNPL

Some credit cards offer BNPL plans as a payment option. These can be helpful if you already have a good relationship with the credit card company or if you frequently shop at the stores that they partner with.

Some of the most popular include:

Amazon Store Card:

The Amazon Store Card offers BNPL plans for Amazon purchases. You can choose to pay in 6, 12, or 24 monthly installments with no interest if you make your payments on time.

Walmart Credit Card:

The Walmart Credit Card offers BNPL plans for Walmart purchases. You can choose to pay in 6, 12, or 24 monthly installments with no interest if you make your payments on time.

American Express Pay It Plan It

The American Express Pay It Plan It program is a BNPL service that offers interest-free installment plans for purchases made with your American Express card. You can choose to pay in 3, 6, or 12 monthly installments, and there is no interest charged as long as you make your payments on time.

However,  the fixed monthly fee will be charged depending on the length of the repayment period.

You need to spend at least $100 or more to be eligible for the program.

Citi Flex Pay

Citi Flex Pay is a payment plan offered by Citi, one of the largest credit card companies in the world. It can be used for purchases made at any store that accepts Citi credit cards.

Citi’s Flex Plan program also includes the Citi Flex Loan option, which allows you to take a loan card’s credit line.

My Chase Plan

My Chase Plan is a BNPL service offered by Chase, one of the largest credit card companies in the world. It can be used for purchases made at any store that accepts Chase credit cards.

A fixed fee will be charged depending on the length of the repayment period, but there is no interest charged as long as you make your payments on time.

You need to spend at least $100 or more to be eligible for the program.

Should you buy now, pay later?

It depends on the company and the plan. Some companies, like Sezzle, offer no-cost plans as long as you make your payments on time.

Others, like zipping, charge a fixed monthly fee but do not charge interest as long as you make your payments on time. Still others, like Bread, require a 25% upfront payment.

Before you decide to use a BNPL service, be sure to read the terms and conditions carefully. Pay attention to the fees and interest rates, as well as the late payment penalties.

And remember, only use BNPL services if you are confident that you will be able to make your payments on time. Otherwise, you may end up paying more in the long run.

If you like the sound of BNPL but don’t want to use a credit card, there are other options available. You can use a debit card, PayPal, or even cash to finance your purchase.

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