This short-term financing makes it easy to get what you need and pay later. But what’s the cost?
It seems almost too good to be true. You find something you want or need, but it’s out of your price range. However, the retailer accepts the option to Buy Now, Pay Later (BNPL) through apps such as Afterpay, Klarna or Zip. So, should you do it?
Buy Now, Pay Later — a form of payment that allows you to pay for purchases in installments — has become increasingly popular, especially since the pandemic lockdowns limited budgets and drew everyone to online shopping. Now, it’s widely accepted at thousands of online and brick-and-mortar retailers. But like many things in life, there are pros and cons to selecting this financing solution.
Here’s what to keep in mind before you opt to BNPL.
How it works:
BNPL is a short-term financing loan, where instead of dishing out the full purchase amount immediately, you can divide the cost over a designated number of installments through an app or a web extension. (“Pay in four” is the typical structure.) After paying an initial amount outright — typically 25 percent — the rest of the cost is divided into subsequent payments. Most people qualify, and applications are quick: you’ll likely fill out an online application with essential information — including name, address, phone number and social security number — and go through a light credit check before getting fast approval.
After that initial payment, you’ll pay the remainder of the balance out over a series of interest-free installments, with due dates every two weeks for six to eight weeks. (Note that not all purchases qualify for BNPL, and there can be limits on the amount as well.) A variety of BNPL apps are now available, and each one includes different features, from shopper perks to flexible payment schedules, making it easy to find a BNPL app that fits your needs.
Here are a few of the reasons BNPL might work — and a few things to pay attention to before you select it.
Pros:
Life is full of big-ticket necessities, and the BNPL model makes expensive items much more affordable. Unlike credit cards, a BNPL approach is interest-free (though some larger purchases and lengthier payment windows may carry interest), and you don’t need good credit to qualify. Approval is quick, and BNPL has become extremely popular, so it’s highly likely your favorite retailers are available.
Cons:
With such a simple and seamless process, it’s easy to overspend with BNPL, and while some apps offer flexible payment dates, late payments can impact your credit score. While four payments in six or eight weeks are interest free, longer-term plans and higher ticket items can charge higher interest rates. Also, keep in mind that payments may continue even if you return the item.
Sound appealing? Here’s a quick overview of a few top BNPL apps. But if you decide to try the BNPL payment plan, don’t forget to read the fine print to ensure you don’t miss a detail.
Klarna
Klarna lets you pay now, split purchases into four interest-free payments, set a 30-day payment window or even set up financing plans between 6-24 months with zero interest. The app also offers perks like flexible due dates and paused payments on returned items, and their Google Chrome extension ensures every online retailer has Klarna access.
Afterpay
Klarna lets you pay now, split purchases into four interest-free payments, set a 30-day payment window or even set up financing plans between 6-24 months with zero interest. The app also offers perks like flexible due dates and paused payments on returned items, and their Google Chrome extension ensures every online retailer has Klarna access.
Zip
Formerly known as Quadpay, Zip includes travel purchases from retailers like Airbnb and the Alternative Airlines flight search engine, making it easy to book interest-free travel and accommodations to see family and friends. Their model is similar to Afterpay — four payments in six weeks — and they charge a $1 convenience fee to install the app.
Affirm
With a mission to deliver honest financial products that improve lives, Affirm allows shoppers to select payment options that fit their budget — four interest-free payments or monthly installments — with easy automatic payments. Affirm doesn’t charge late fees if you miss a payment, either, and the company makes money through partner vendors and select purchases with interest.
Sezzle
When you use Sezzle — another four installments in six weeks model — you can BNPL with nearly 50,000 brands, from clothes to electronics to experiences. Sezzle also offers no fees with on-time payments and free payment rescheduling — plus, late payments won’t impact your credit score.
Whatever you choose, make sure you read every detail closely. While BNPL apps aren’t typically known to have hidden fees, you’ll want to make sure you aren’t missing any important information or essential details before you proceed.
