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

Buy Now Pay Late

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updated: July 18, 2024
edited by Erik Haagensen

“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.

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.”

The holiday shopping season that ended Dec. 31, 2023 revealed more adoption and growth in the BNPL sector. According to Adobe, one in 14 online sales were attributed to BNPL apps, and the season reported a spend of $75 billion, up 14.3% year over year and $9.4 billion more than during the same period in 2022.

With the rapid expansion of an unregulated product, such as BNPL, can come potential problems. In a December 2023 Wells Fargo report called “BNPL: The Phantom Debt,” it pointed out that BNPL apps may encourage overspending leading to debt, leave consumers unprotected by the types of regulations customers of credit cards and banks enjoy, and subject them to hidden fees. According to the paper “Buy Now, Pay Later: How Retail's Hot Feature Hurts Low-Income Shoppers” from the Harvard Business School, shoppers earning modest incomes may overspend on BNPL loans, which makes them more liable to overdraft fees and more likely to take funds from their savings accounts to pay back the BNPL loans.

The powerful Consumer Financial Protection Bureau (CFPB) has taken note of the potential dangers to consumers using BNPL loans and has been monitoring the nascent industry and its impact on customers since 2021. In May 2024, it released a new interpretive rule giving consumers who use the service some of the increased protections that credit card users have. These include getting regular billing statements, prompt refunds for returned items or canceled services, clear disclosures, and the requirement that lenders investigate disputes consumers initiate and pause payments pending the result of the investigation.

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


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


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


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.


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, which isn’t the case when using credit cards. The new CPFB interpretive rule should result in an end to such problems, but check with your BNPL lender.

Be sure you understand all the BNPL terms before committing to any purchases.

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 commit funds you don’t or won’t have. Additionally, the apps make it harder to return items that don’t work out. That’s another issue the new CPFB interpretive rule is designed to improve. 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 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 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

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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