Buy Now, Pay Later (BNPL): How It Works, Benefits, How to Get It

“Buy Now, Pay Later (BNPL),” also known as a “point-of-sale loan,” is a short-term loan that allows you to buy goods or services in installments set by an online app vendor or a retailer. Retailers and apps such as Affirm, Sezzle, and PayPal, are among those that offer this service.

Fees	No late fee (terms apply)	No late fee (terms apply)
Purchase limit	$2,500, except for first-timers, whose limit may be less.	$1,500 for Pay in 4 and $10,000 for Pay Monthly.
Credit check	Yes	Yes
	View Offer	View Offer

While BNPL loans have become very popular, these payment methods aren’t without risks. The Consumer Financial Protection Bureau (CFPB) has been monitoring the nascent industry and its potential risks to customers since 2021.

If you’re considering a BNPL loan, here’s everything you need to know about their benefits, risks, and more.

How popular is BNPL?

BNPL is now so popular that 42% of American consumers have used it at least once, according to a 2021 survey by Credit Karma. Looking to the future, a 2022 Juniper Research report predicted that the number of users will surpass 900 million globally by 2027, up from 360 million in 2022, a whopping 157% increase. Juniper explained its prediction by saying that “significant growth in BNPL users…will be driven by the anticipated economic downturn increasing demand for low-cost credit solutions.”

A recent Adobe report revealed more adoption and growth in the BNPL sector. According to Adobe, BNPL spending totaled $75 billion for the year, $9.4 billion more than in 2022. And the Federal Reserve reported in May 2024, that 14% of U.S. households in 2023 had used BNPL, up from 12% the year before.

How does BNPL work?

With BNPL, a shopper enters into an agreement with a retailer or app to buy goods or services and pay for them over a set schedule. Depending on the BNPL service, borrowers may repay their loans in four equal installments over a short period of time, often six weeks—or, for larger ticket items, up to four years.

To access a BNPL loan, you complete an on-screen application when checking out with a participating retailer. You’ll provide personal information, such as your name, address, email address, date of birth, and Social Security number. The BNPL vendor may follow up with a soft credit check, which won’t impact your credit score, and approve or deny your application within minutes.

While some compare BNPL to traditional layaway plans, it’s different because the shopper receives the goods or services after paying the first installment. With a layaway plan, the shopper receives them after paying the full amount.

Note that you can repay BNPL loans with your bank account or debit card, but you might not be able to use your credit card. Some major card issuers, including Capital One and Chase, have banned third-party BNPL payments. Certain credit card companies, like Chase and American Express, offer their own BNPL services.

BNPL: Pros and Cons

Benefits

BNPL plans are helpful if you need an item now but won’t have all the funds till a short time later. Many BNPL apps offer four installments that span six weeks for relatively inexpensive purchases. This means you receive the item or service at the first payment and can be using it over the payment period. Another advantage is that many BNPL plans require no minimum credit rating.

Risks

BNPL plans are loans, so every time you use one you are incurring a debt. If you are diligent about meeting the payment schedule, this poses no risk for you. However, the Credit Karma survey said that 38% of U.S. users had missed at least one payment, with 72% of those seeing a decrease in their credit score as a result.

A December 2023 Wells Fargo report, “BNPL: The Phantom Debt” pointed out that BNPL apps may encourage overspending, leave consumers unprotected by regulations that credit card and banking customers enjoy, and subject them to hidden fees. A Harvard Business School paper, “Buy Now, Pay Later: How Retail's Hot Feature Hurts Low-Income Shoppers,” expands on these concerns, citing that shoppers earning modest incomes could overspend with BNPL loans, leaving them vulnerable to hefty fees and more likely to use their savings for repayment.

As mentioned, the CFPB has been monitoring the risks of BNPL loans. In May 2024, it released a new interpretive rule that will provide BNPL borrowers with some of the same protections credit card users enjoy. These include getting regular billing statements, clear disclosures, and prompt refunds for returned items or canceled services. It will also require that BNPL lenders investigate disputes consumers initiate and pause payments pending the result of these investigations.

If you’re considering a BNPL loan, ensure you understand the loan’s terms and read the fine print before committing to any purchases.

Should you use BNPL?

Whether you should or shouldn’t use BNPL depends on how you handle money and whether you’re comfortable with the risks. If you pay your bills on time, it could allow you to purchase something sooner rather than later and give you breathing room to pay other bills that come due first.

If a BNPL loan would over-extend you financially or make it difficult to repay other debts, it’s best to avoid borrowing. A good rule is to use BNPL only for essential items, such as a mattress or a computer for school, rather than for impulse buys.

Which apps offer BNPL?

Many BNPL apps exist. Among them are Affirm, Afterpay, Klarna, Sezzle, and PayPal. Here are details on two, to give you a sense of how these work.

Fees	No late fee (terms apply)	No late fee (terms apply)
Purchase limit	$2,500, except for first-timers, whose limit may be less.	$1,500 for Pay in 4 and $10,000 for Pay Monthly.
Credit check	Yes	Yes
	View Offer	View Offer

PayPal

PayPal is also a mobile payment app that has branched out to BNPL services. These include Pay in 4, in which a user pays off the purchase in four equal biweekly installments for goods and services valued at between $30 to $1,500, and Pay Monthly, for bigger-ticket items costing between $199 and $10,000 through six-, 12-, and 24-month payment plans with $0 down. PayPal charges interest of between 9.99% and 35.99% for Pay Monthly.

Sezzle

Sezzle is a fintech company founded in 2016 that offers a BNPL app that not only sells items from black-owned businesses, but also features profiles of the top designers and CEOs connected with the goods. They include luxury clothes from designer Fe Noel, cruelty-free non-toxic personal-care products from PiperWai, and UNice Hair for wigs and hair products, as well as goods and services from big retailers such as Walmart, Apple, and Kohl’s. It introduced the Pay-in-2 program in 2023, which allows customers to pay 50% of the purchase at checkout and the balance two weeks later in addition to its Pay-in-4 plan, which allows you to pay in four equal installments over six weeks.

Alternatives to BNPL

BNPL vs. credit cards

A credit card with an introductory 0% annual percentage rate (APR) can be a better option than a BNPL loan. If your credit score is 670 or above, you could potentially qualify for one. The introductory APR period can be anywhere from six to 21 months, which provides you with a longer repayment time frame than most BNPL apps would allow.

The other upside to using a 0% APR card and paying on time is that credit card companies report payments to the credit bureaus, which could help your credit score. Depending on the card, you may also be eligible for a welcome bonus, travel rewards, and cash back. Finally, if you have a dispute with a merchant, credit cards offer protections, such as suspending a charge until the matter is resolved.

BNPL vs. personal loans

You may also find more flexibility with a personal loan. Sure, the lender charges interest, but a personal loan may have a longer repayment term than a BNPL loan. You’ll likely need good credit to qualify, and your credit score may improve with responsible repayment. You can consult with our list of best banks offering personal loans.

TIME Stamp: Read the fine print before using BNPL apps

BNPL is a shiny new object in the financial sector that offers you a short-term loan to buy qualifying goods and services. Some BNPL services charge no interest or late fees. However, others may, and late payment fees could be very costly. Credit cards with 0% introductory APRs or personal loans with reasonable interest rates may be better options to consider.

Frequently asked questions (FAQs)

How does BNPL affect your credit?

As long as you make the payments on time, it doesn’t help or hurt your credit score. However, even though BNPL plans generally don’t report delinquent payments to the credit bureaus, a debt collector may, which could mean a drop in your score.

What is the easiest BNPL guaranteed approval?

The app Affirm provides one of the easiest guaranteed approvals. It also offers 0% interest loans, charges no fees, and requires no minimum credit rating.

Where can I use the Cash App BNPL app?

You can only browse the Cash App network of available BNPL merchants in the app itself. The service is called “Afterpay Shopping,” and the merchants include Walmart, Walgreens, 7-Eleven, and many more.