What is buy now, pay later and how does it work?

  • The Buy Now, Pay Later programs allow you to purchase items without paying for them all at once.
  • When shopping online, you can usually receive BNPL approval at the checkout within a few seconds.
  • However, don’t let BNPL trick you into spending money you don’t really have.
  • Read more about Personal Finance Insider’s credit coverage here.

The holidays are just around the corner and people are opening their wallets to pay for the festivities – consumers are estimated to be spending nearly $ 1,000 this holiday season, according to recent data from the National Retail Federation.

When you can’t spend all that money upfront, the option to completely delay paying for gifts with an agreement called Buy Now Pay Later is becoming increasingly common.

What does buy now mean, pay later?

Buy Now, Pay Later (BNPL) allows you to buy items without paying for them all at once. Instead, you only pay part of the price upfront and spread the remaining cost over a predetermined number of installments. These payments are often interest-free and the approval process is relatively quick for consumers.

BNPL has become an exponentially more popular option with shoppers, especially those shopping online. Companies like Affirm, Afterpay, Klarna and QuadPay all work with various retailers to offer installment loans at the point of sale (another name for BNPL).

Businesses have limits on the amount you can fund through BNPL, and not all purchases are eligible for this plan.

There is no single set of rules for BNPL programs as every company operates differently. However, this is generally to be expected with BNPL:

  • When paying at a participating retailer, select the BNPL option and receive an approval decision within seconds
  • Make a small advance payment, e.g. B. 20% of the total purchase amount
  • Pay the outstanding balance in a set number of weekly, bi-weekly or monthly installments (which are usually interest-free)
  • Choose to make automatic payments from your debit card, credit card, bank account, or pay by check

Advantages and disadvantages of buying now, paying later

What alternatives are there to buy now and pay later?

Save to make your purchase directly.

If you are lucky enough to wait to buy, buying your item all at once can prevent you from increasing your overall debt and avoid the stress of keeping up with weekly or monthly payments. Set a target amount for your purchase and save a portion of your paycheck every month to help meet your goal.

Use a credit card to make your purchase.

If your desired purchase isn’t available through BNPL or is more expensive than you can process in monthly installments, you may want to use a credit card. Note, however, that BNPL is usually easier to approve than traditional credit cards.

Both credit cards and BNPL allow you to delay payments on purchases, but they work differently. With BNPL, you pay off your item on a fixed schedule, usually over several weeks or months, with minimal to low interest rates. Credit cards allow you to hold funds indefinitely (although you have to make minimum monthly payments), but interest accrues until you pay your purchase.

Another option for a large purchase is to open a credit card with 0% APR. This rate is usually the introductory rate, which means it will last a certain amount of time after you open the card, but you will not be charged any interest as long as you pay the balance before this period expires.

Take out a personal loan for your purchase.

Personal loans work similarly to BNPL in that they are installment loans with a set payment schedule and interest rate. However, personal loans are generally used for larger purchases (the minimum on most personal loans is around $ 1,000) and they have longer repayment periods. Your creditworthiness is an important factor in determining your personal loan terms, so you may pay a much higher interest rate on a personal loan than BNPL if your credit is not in good shape.


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