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Buy Now, Pay Later (BNPL) Guide 2024

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Updated January 25, 2024

“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.

Sezzle
Paypal Money Management App
Cushion App
Fees
No late fee (terms apply)
No late fee (terms apply)
$4.99 or $12.99 (depends on subscription)
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.
Because Cushion provides a virtual credit card, the limit is the balance in your bank account.
Credit check
Yes
Yes
No

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.”

Of course, as of November 2023 that downturn has yet to show up in the U.S. Interestingly, Juniper said that the biggest market for BNPL is likely to be India, not because of an economic downturn but “due to rising eCommerce usage and growing interest in international goods available through online retailers.” Still, even if the prediction fails to be fulfilled, 360 million U.S. users is nothing to sneeze at.

How does BNPL work?

The shopper enters into an agreement with a retailer or an online app to buy the goods or services and pays for them over a schedule set by the retailer or app, according to the Consumer Financial Protection Bureau. The terms could be four equal installments over a short period of time, often six weeks, or, for larger ticket items, up to as long as four years.

At checkout you are asked to complete an application directly on the screen. The app asks a number of personal questions, such as your name, address, email address, date of birth, and Social Security number. Next the BNPL vendor may conduct a soft credit check, and then within minutes will approve or deny your application. This credit check does not affect your credit score. A soft credit check, also called a “soft inquiry” or “soft pull,” happens whenever an entity checks your credit report but does not submit a new application for credit.

BNPL is different from a layaway plan because the shopper receives the goods or services after paying the first installment, whereas with a layaway plan the shopper receives them only after paying the amount in full.

BNPL: Pros and Cons

Pros:

  • Goods or services are sent or active after making the first installment.
  • No minimum credit score is needed.

Cons:

  • Interest or late fees may be charged.
  • It encourages overspending.

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.

This is interesting, as it means that debt collectors must have reported the delinquencies, because BNPL plans usually have no dealings with credit agencies, according to the CFPB. Thus, paying off a BNPL plan on time can’t help your credit score, while failing to do so can hurt it, a double whammy.

Even worse, the CFPB says that purchases made with BNPL loans lack some of the consumer protections of credit card purchases, such as reimbursing you for scams or faulty goods. In addition, according to the CFPB, “The BNPL company may require you to pay the total cost of a purchase until the dispute has been resolved with the merchant, so be sure to read and understand the merchant’s specific return policies and the BNPL loan terms before making a purchase with a BNPL loan.”

Should you use BNPL?

This depends on how you handle money and whether you’re willing to deal with the risks. If you are responsible about paying your bills on time, it may be a way to get what you want or need sooner rather than later and give you breathing room to pay other bills that come due earlier. A good rule is to use BNPL only for essential items, such as a mattress or a computer for school, rather than engage in using it for impulse buys.

Another downside of BNPL plans is that paying in installments could leave you with a false sense of how much money you have and encourage you to overspend. Additionally, apps make it harder to return items that don’t work out. Further, as Peter Smith, a senior researcher at the Center for Responsible Lending (CRA), told Kiplinger, “BNPL lenders are making it easier for borrowers to use high-cost loans for everyday purchases [while]…trying mightily to hide the true costs and risks of these loans.”

Which apps offer BNPL?

Many apps offer the option of buying now and paying later for a wide variety of items, from travel to furniture to electronics to fitness equipment to auto parts and much more. Among them are Affirm, Afterpay, Sezzle, and PayPal.

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.

Alternatives to BNPL

BNPL vs. credit cards

Not all credit cards are alike, and one type is a card with an introductory 0% annual percentage rate (APR), which can be a better option than using a BNPL app. If your credit score is at 670 or above, you should be able to qualify for one. The introductory period can be anywhere from six to 21 months, which is a longer time period than most BNPL apps would allow you.

The other upside to using such a card and paying on time is that credit card companies report payments to the credit bureaus, which can help raise your credit rating. Additionally, you may be eligible for a sign-on bonus, free annual membership, rewards, and cash back. Finally, if you have a dispute with the merchant, credit cards offer protections, such as suspending a charge until the matter is resolved.

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BNPL vs. personal loans

You may also find more flexibility with a personal loan. Sure, the lender charges interest, but it can give you a longer window to make good on your purchase than you would using BNPL. A robust credit score is key. And if you pay the loan back on time, your credit rating gets a boost.

TIME Stamp: Read the fine print before using BNPL apps

BNPL is a bright new shiny object in the financial sector that offers you a short-term loan to buy what you want. Some apps or retailers charge no interest or late fees. However, others do, and a late payment may be very costly. There are probably better alternatives, such as a credit card with a 0% introductory APR or a personal loan with a reasonable interest rate, 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.

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