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Like its name suggests, buy now, pay later lets you make a purchase and receive it immediately, but pay for it at a later time, usually over a series of installments.
Though this type of payment plan has been available for years, it exploded in popularity during the pandemic as more people shifted to online shopping.
Most major retailers now offer some type of buy now, pay later plan, but whether you should opt in depends on the plan and your financial situation.
What is buy now, pay later?
Buy now, pay later, or BNPL, is a type of installment loan. It divides your purchase into multiple equal payments, with the first due at checkout. The remaining payments are billed to your debit or credit card until your purchase is paid in full.
These plans can come with interest and late fees, though some plans, depending on the provider, charge neither.
You’ll mostly see BNPL payment plans when you shop online, although some plans are available in stores.
How does buy now, pay later work?
During check out, you’ll see an option to break up your total purchase and pay a smaller amount now, instead of the full balance.
If interested, you’ll fill out a short application directly on the checkout screen. It may ask for information like your name, address, date of birth and phone number. You will also provide a payment method. Then, the BNPL provider may perform a soft credit check, which won't affect your credit score, and approve or deny your application in a matter of seconds.
Approval criteria vary, but even if you have bad credit or no credit, you may still be eligible.
The plan you’re offered will also vary by provider, but many companies offer a “Pay in 4” model, which divides your purchase into four equal installments, each due two weeks apart, with the first payment due immediately.
For example, if your total purchase is $300, you will pay $75 at checkout, then have three remaining payments of $75, each due two weeks apart. As long as you make all payments on time, you will have paid off your purchase in six weeks.
While Pay in 4 doesn’t usually charge interest, other BNPL plans can charge an annual percentage rate up to 30%. Late fees range from $7 to $8 and are usually capped at 25% of the order value.
Should you buy now, pay later?
There are several things to consider when deciding whether to choose a BNPL payment plan.
NerdWallet recommends using BNPL only for necessary expenses, like a mattress for your apartment or a computer for school. Though the plan may seem simple and low-cost, you’re still taking on debt, and it’s rarely a good idea to go into debt for a nonessential purchase.
You’ll also want to look for a BNPL plan with zero to minimal interest. This will lower your monthly payments and make it easier for you to pay back the loan.
If you’re struggling to pay your bills or start an emergency fund, steer clear of buy now, pay later. Because of its ease and convenience, it’s possible to overspend with BNPL. You may incur high late fees or be sent to collections, which will hurt your credit score.
For some shoppers, paying with alternatives like credit cards may be a smarter financing choice. Not only do most credit cards earn rewards or cash back, but they also report on-time payments to the credit bureaus, which most BNPL companies don’t do. A history of on-time payments can help build your credit score and open the door to more affordable financing options in the future.
What sites let you buy, now pay later?
Afterpay is one of the largest BNPL sites and it offers the straightforward Pay in 4 model. It partners with retailers like Old Navy, Gap and Bed Bath & Beyond. As long as you pay on time, there are no additional fees with Afterpay. However, if your payment isn't received within 10 days of the due date, you’ll be charged a maximum fee of $8.
Affirm partners with retailers like Walmart, Adidas and Pottery Barn. Unlike other providers, its interest rates vary with each individual retailer, meaning your repayment term and interest rate will change based on where you shop. While some of Affirm’s partner stores charge zero interest, others can charge up to 30% APR, with terms up to 12 months. Affirm never charges late fees.
Klarna is offered at stores like Sephora, Foot Locker and Macy’s. Its Pay in 4 plan also charges no interest, but if Klarna is unable to collect a payment after two attempts, it will charge a late fee of up to $7.
0% - 30%.
Varies based on retailer.
4 installments, due every 2 weeks.
4 installments, due every 2 weeks.
Other popular BNPL sites include PayPal, Sezzle and Quadpay. Some retailers offer multiple BNPL payment options at check out. If you’re stuck choosing between two or more plans, it’s usually best to pick the one that charges zero interest, since it’s more affordable. But make sure you can pay the installments on time.