Buy now, pay later: What to know

Buy now, pay later (BNPL) is a way to pay for purchases in installments over time. Recently, this method has been growing in popularity as shoppers seek more convenient and affordable payment solutions.

But what does buy now, pay later mean, exactly? And what is a buy now, pay later app? It’s pretty straightforward: With a BNPL app, customers can check out immediately and complete their purchase via multiple payments, typically over the course of several weeks or months.

Instead of paying a lump sum upfront, customers can apply to finance everyday purchases at low or no interest rates through a range of online and in-person retailers. With PayPal Pay Later, for example, purchases can be split into four bi-weekly payments or up to 24 monthly payments for larger purchases.^1,2

How do buy now, pay later apps work?

Buy now, pay later solutions come in a variety of forms — one of the most popular being apps. Some providers of BNPL offer it as their primary service, while others include it as one of a variety of products. Regardless of the provider, the process works similarly. A customer can create an account through the provider and, when checking out through an approved seller, can apply for a BNPL loan with an approval decision typically coming within seconds. Many BNPL apps don’t require a hard credit check for approval, so applying generally won’t impact your credit score.

Once an account has been created and used to made purchases via the provider’s BNPL method, it’s typically possible to track purchases and payments via the provider’s app. This can be a helpful way to stay on top of what is owed and when.

When can a buy now, pay later app be used?

Buy now, pay later apps can be used for many different types of payments, including everyday purchases, necessary expenses, travel reservations, or gifts for special occasions. BNPL apps can also be used to complete purchases with many e-commerce retailers and large department stores.

For example, a customer may be buying a new $2,000 couch for their living room. With a BNPL app, they could complete their purchase, make a $500 down payment, and then pay the rest in three $500 installments. Perhaps someone has the need to buy a new refrigerator. On the department store website, they could choose BNPL at checkout and, if approved, set up the payment plan that works best for them.

As with all purchases, individuals should never spend beyond their means. While buy now, pay later can offer the flexibility to spread out purchases, customers should always stay on top of their finances and ensure they aren’t buying something they can’t afford.

Some considerations

There are many important factors to consider when choosing a BNPL app, including the following:

• Repayment options. Many apps offer different payment plans, such as bi-weekly payments, monthly payments, and plans to pay in full in 30 days.
• Interest payments. Some BNPL apps offer no-interest payments, while others may come with interest rates depending on the repayment option.
• User experience. A BNPL app should be easy to download, set up, and manage, so it’s possible to stay on top of payments.
• Fees. Some apps charge late fees for late or missed payments, while others come with no fees.
• Loan amounts. BNPL apps and retailers may set maximum purchase amounts for their payment plans.
• Credit checks. Applying for buy now, pay later plans generally won’t affect your credit score. Many apps only conduct soft credit checks during the application process.
• Eligible merchants. Many merchants accept BNPL, but not all.
• Reviews. Reviews from past and current users can be a helpful way to measure if customers have been satisfied with their BNPL experience.