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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.
This type of payment plan is available at most major retailers, but whether you should use it depends on the plan itself and your financial situation.
Though buy now, pay later can be a smart, low-interest way to break up an expense, you’re still taking on debt, and there are risks involved.
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, credit card or bank account until your purchase is paid in full.
These plans can come with interest and fees, though some plans, depending on the provider, charge neither.
You’ll often see BNPL payment plans available when you check out online. For in-store shopping, providers offer one-time virtual cards you can download from the provider’s mobile app, save to your mobile wallet and use at the register.
How does buy now, pay later work?
During checkout, 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, email address, date of birth, phone number and Social Security number. You'll 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 providers use a “pay-in-four” 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'll 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'll pay off your purchase in six weeks.
While a pay-in-four plan doesn’t usually charge interest, longer-term BNPL plans may charge an annual percentage rate up to 36%. Fees, like for late or rescheduled payments, range from $1 to $15 and are sometimes capped at 25% of the purchase value, depending on the company.
Should you use 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 convenience, it’s easy to overspend with BNPL. If that happens, you may incur high 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 not many BNPL companies do. A history of on-time payments can help build your credit and open the door to more affordable financing options in the future.
Unlike BNPL, most credit cards charge interest, which you can avoid by paying off the balance each month.
Credit cards are also carefully regulated, which means there are additional consumer protections in place such as more cost transparency and stricter underwriting criteria, both of which can keep people from overextending themselves.
In a potential sign of more oversight in the future for the buy now, pay later industry, the Consumer Financial Protection Bureau released a study in September 2022, identifying several risks to using BNPL, including a lack of consumer protections, the ease of debt accumulation and the potential for data harvesting. The CFPB says it will continue work on addressing these issues, which could lead to greater regulation of BNPL.
A secondary CFPB study, released in March, also identified BNPL users as more likely to show signs of financial distress, including having higher amounts of debt, more delinquencies on other credit products and lower credit scores compared to non-users.
What apps let you buy now, pay later?
Affirm partners with retailers like Amazon and Walmart. While its pay-in-four plan is always zero interest, its monthly payment plans, which have terms up to 60 months, may charge 0% to 36% APR. Affirm doesn't charge late fees.
Afterpay partners with retailers like Old Navy and Gap and offers both an interest-free pay-in-four and monthly plans of either six or 12 months. Monthly plans range from 0% to 35.99% APR. 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.
Apple Pay Later can be used online or in-app anywhere Apple Pay is accepted. Apple charges zero interest and no fees for its pay-in-four plan. Users must tie their Apple Pay Later plan to a debit card, and payments can be managed in the Wallet app.
Klarna is offered at stores like Sephora and Macy’s. Its pay-in-four plan charges no interest, but if you’re more than 10 days late on a payment, Klarna will charge a late fee of up to $7. Klarna also offers monthly payment plans from six to 24 months with 0% to 29.99% APR.
PayPal offers a pay-in-four and monthly payment plan online and through its mobile app at stores like Best Buy and Home Depot. The pay-in-four is interest-free, while plans of six, 12 or 24 months range from 9.99% to 29.99% APR. PayPal does not charge late fees.
Sezzle, offered at thousands of retailers including Target, charges zero interest for using its pay-in-four plan. Though it doesn't charge a late fee, it deactivates your account after 48 hours when you miss a payment, and you'll need to pay a reactivation fee of up to $15 to use Sezzle again. Sezzle may also charge a fee of up to $5 for paying by debit or credit card after your initial down payment.
Zip is available anywhere Visa is accepted when you download Zip's mobile app. It charges an installment fee for using its pay-in-four. This fee ranges from $4 to $6, depending on the purchase amount. It also charges a $5, $7 or $10 late fee for missed payments, depending on which state you live in.
Apple Pay Later
» MORE: Compare buy now, pay later apps
Some retailers offer multiple BNPL payment options at checkout. 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.
Alternatives to buy now, pay later
Though buy now, pay later can provide a simple and convenient way to cover a purchase, it doesn’t offer the same features as other financing methods. You may want to consider these alternatives.
0% interest credit card: If you have good or excellent credit (a credit score of 690 or above), you could qualify for a 0% APR credit card, which charges zero interest during the card’s introductory period — usually 15 to 21 months. Credit card companies will report payments to the bureaus, which may help build your score. You may also receive a sign-up bonus or access to a rewards program.
Small personal loan: If you want a longer repayment period, a small personal loan could be a smart choice. Personal loans are available for borrowers across the credit spectrum, and like credit cards, you can show a history of on-time payments to the bureaus. You’ll pay interest on a personal loan, but with longer terms, the monthly payment may fit more comfortably in your budget.