What Is Buy Now, Pay Later and How Does BNPL Work in 2024
By Maddy Scheckel 42% of American consumers have used buy now, pay later (BNPL) services.
If you’re curious what the hype is all about, continue reading.
In this guide, I’ll answer the question, “What is buy now, pay later?”
I’ll also cover how BNPL works, relevant statistics, and common pros and cons of this growing service.
What is Buy Now, Pay Later (BNPL)?
If you’re wondering what is buy now, pay later, or BNPL, it allows consumers to buy something today and pay it off over a set timeframe.
Installments are normally spread out over six weeks.
Most buy now, pay later companies charge zero interest.
Normally, users will have to make a downpayment of 25% during checkout, and every second week, they’ll withdraw 25% of your checkout total from your account until the loan is paid off.
Well-known examples of buy now, pay later companies are:
- Cushion
- Klarna
- Affirm
- Zip (previously known as QuadPay)
- Sezzle
- Afterpay
- PayPal Pay in 4
- Nelo
- Zilch
- Apple Pay Later
- Splitit
- Sunbit
But why would retailers pay to work with buy now, pay later services?
In short, they encourage consumers to spend more money. A recent study by Klarna found that customers spend 68% more when a buy now, pay later option is available.
And that’s the catch.
So I suggest limiting the number of BNPL purchases you make at a time. This way, you can easily manage payments and avoid falling behind.
How Does Buy Now, Pay Later Work?
Now that you know what is buy now, pay later, let’s look at how it works:
- Sign up for an account
- Get approved
- Buy from your favorite retailers
- Pay your first installment at checkout
- Make payments on time
Step 1 – Sign Up For An Account
The first step is signing up for an account. Luckily, this process usually only takes a few minutes.
Companies will ask for personal information like:
- Your full name
- Email address
- Phone number
- Credit or debit card details
If the lender is struggling to verify your identity, you might also have to enter your Social Security Number (SSN) and submit a picture of your photo ID.
But this process is much smoother compared to personal loan and credit card applications. For instance, there’s no need to provide pay slips, employer information, or tax returns.
Step 2 – Get Approved
After submitting your application, most buy now, pay later providers will conduct a soft credit check.
Unlike hard credit inquiries, soft credit checks won’t harm your credit score and aren’t visible to future lenders.
Although most of these services don’t have minimum credit score requirements, it doesn’t mean approval is guaranteed.
Fortunately, if your application is denied, most lenders will give feedback explaining the reason behind the decision. From there, you can fix the problem and reapply in the future.
To increase your chance of approval, consider these tips:
- Link your bank account to the buy now, pay later mobile app
- Use the pay-in-full option before signing up for the buy now, pay later feature (if it’s available)
- Improve your credit score by paying off outstanding debt
Once your account is approved, you’ll be given a spending limit. Most BNPL companies will start you off with a smaller amount and increase your limit as you build a buying history.
If you need help fixing your credit, check out our comparison of Credit Saint vs Lexington Law, or see if working with the best tradeline companies could be the right credit repair solution for you.
Meanwhile, learn how to budget for non recurring expenses so you can be prepared for unexpected costs going forward.
If you’re looking for a low-tech, hands-on budgeting method, learn about cash envelope categories. And if you need to boost your savings fast, the 60/30/10 rule budget can help.
Step 3 – Buy From Your Favorite Retailers
Buy now, pay later lenders usually partner with a payment-processing service such as Mastercard or Visa. So you can shop at retailers that already accept these credit cards.
I also like that many BNPL services give users access to exclusive discounts. Some discounts go as high as 70% off your total purchase.
But my favorite part is the cashback.
Many BNPL companies offer users cashback on select purchases or if they shop while there’s a special promotion going on. To sweeten the deal, most companies don’t put an expiration date on rewards earned.
Step 4 – Pay Your First Installment At Checkout
At checkout, select the buy now, pay later option with the lender of your choice. You’ll then be taken to the lender’s app or webpage, where you’ll pay the initial installment.
The first installment is typically 25% of your total at checkout. For example, if you’re buying something worth $100, you’ll only pay $25 today.
Step 5 – Make Payments On Time
The last step is paying your installments.
Buy now, pay later apps usually come with autopay or have it as an option. This is helpful to ensure you make payments on time.
Most BNPL payment plans consist of making four equal payments over six weeks. In other words, you’ll make a payment every second week until the loan is paid off.
If you can’t make a payment on time, try contacting the company’s customer support team. I’ve found that many of them are willing to let you reschedule your repayment dates at least once, free of charge.
Some, like Sezzle, for example, will even waive any late fees if you make the payment within 48 hours.
However, be aware of possible convenience and late fees. Late fees typically range between $5 to $20, depending on the total purchase amount.
For these reasons, I suggest only using buy now, pay later options when you know you can afford the full purchase amount.
Buy Now Pay Later Statistics
Klarna is one of the largest buy now, pay later companies, with 150 million users in 45 countries.
However, other buy now pay later services such as Afterpay are starting to gain traction with five million active users in the US.
Noticing this rapid surge in popularity, even Walmart and Apple are trying to get in on the action as each brand plans to launch its own buy now pay later platform.
A significant reason why buy now, pay later is gaining popularity is because people realize the dangers of credit card debt. The average credit card interest rate is 16.27%, which can leave consumers paying interest for several months.
For more information, check out my full article covering Buy Now, Pay Later Statistics here.
Pros and Cons of Buy Now, Pay Later Apps
| Pros | Cons |
| They typically only conduct soft credit checks | It may encourage consumers to buy more than they need |
| Qualifying is easy, even if you have a low credit score | Convenience and late fees can add up quickly |
| There’s usually no interest | If you miss payments regularly, the BNPL company can report your account to credit bureaus |
| Payments are spread out (normally over six weeks) | BNPL apps will sometimes sell your data to third-party advertisers |
| Many buy now, pay later services offer cashback and access to other exclusive promotions | Often have less consumer protection compared to credit cards |
Commonly Asked Questions About Buy Now, Pay Later Apps
Does Buy Now, Pay Later Affect My Credit Score?
Using buy now, pay later services won’t affect your credit score. BNPL companies typically only conduct soft credit checks. However, these companies reserve the right to report your account, so your credit score might drop if you miss payments regularly.
Most Popular Buy Now, Pay Later Apps?
The most popular buy now, pay later apps are Klarna, Afterpay, Affirm, Zip, Sezzle, and PayPal Pay in 4. These companies have hundreds of millions of users worldwide, and this number is only expected to increase.
Should I Use a Buy Now, Pay Later (BNPL) App?
If you’re making large, infrequent purchases, then using a buy now, pay later app is a good idea. But if you’re prone to impulse shopping, I’d suggest steering clear. Installment payments and fees can become overwhelming fast.
Who Pays in Buy Now, Pay Later?
Buy now, pay later providers will pay the retailer the checkout total and collect the full amount from you over six weeks. Retailers usually don’t mind offering buy now, pay later because having BNPL options tend to encourage customers to buy more.
What Happens If I Don’t Pay Buy Now, Pay Later?
If you don’t pay your buy now, pay later account, your lender will most likely charge you late fees. They may pause your account, too, so you won’t be able to buy anything until your debt is paid. Some may even report your failure to pay to the major credit bureaus.
To learn which budgeting app could best help you manage your finances and boost your savings, check out these comparisons of Rocket Money vs the competition:
Is There A Catch To Buy Now, Pay Later?
Buy now, pay later services often encourage consumers to buy more than they need because they make the checkout total appear lower. Instead of paying $100 immediately, you only have to spend $25.
How Does Buy Now, Pay Later Make Money?
Buy now, pay later apps make money by charging transaction fees to retailers. So when you buy something, the BNPL company will pay the retailer around 92% to 98% of your cart value and collect the full total from you.
Buy Now, Pay Later Vs. Credit Cards?
Buy now, pay later is a popular alternative to credit cards as you usually don’t have to pay interest or annual fees. You can get approved with only a soft credit check, so you don’t need a high credit score either. However, credit cards offer more flexibility and can be used virtually anywhere.
Popular Buy Now, Pay Later Apps:
- Cushion (read this full Cushion App review to learn more)
- Sezzle (read full Sezzle review here)
- Perpay (read this full PerPay review to learn more)
- Afterpay (read these Afterpay reviews to learn more)
- Affirm (read these Affirm reviews to learn more)
- Zilch (read this full Zilch review to learn more)
- Nelo (read this Nelo review to learn more)
- Klarna (read these Klarna reviews to learn more)
- Zip (read these Zip reviews)
- PayPal Pay in 4 (read these PayPal Pay in 4 reviews to learn more)
- Splitit (read this Splitit review to learn more)
- Apple Pay Later (read this Apple Pay Later review to learn more)
- Sunbit (read this Sunbit review to learn more)
