5 things everyone should know about buy now, pay later (BNPL)

With inflation stretching budgets, millions of Americans are tapping their credit to fund basic needs. But credit card use comes at a steep price. Americans pay $120 billion in credit card interest and fees every year, according to the Consumer Financial Protection Bureau.

Not everyone has the financial capacity to make ends meet and still pay off their credit cards in full every month. Finder data reveals that 7.7% of card balances have been delinquent for over 90 days. So, many retailers partner with buy now, pay later (BNPL) services to make buying their products and services more accessible.

BNPL options, such as Affirm and Klarna, are similar to credit cards because you make purchases and pay for them over time. However, a significant difference is that you may not have to pay added interest charges if you make scheduled payments on time.

Here are five things everyone should know about using BNPL and when it may be right for you.

What is BNPL?

Defining BNPL can be challenging because there are different business models. Some offer a short-term loan repaid with or without interest based on your chosen term. Other BNPL offers allow you to split up a purchase into equal payments over a period, such as four or six weeks.

For instance, if you pay using Affirm, you can make four interest-free payments every two weeks. You can also make six or 12 monthly payments based on your purchase amount and credit.

Klarna is another BNPL alternative to a credit card that allows you to split a purchase into four weekly, interest-free payments. If approved, you can also finance a larger purchase from six to 24 months.

Not every BNPL option is the same

There’s a range of BNPL offers, and consumers shouldn’t believe each is the same. For many BNPL options, you don’t see them until you add goods, such as clothing, furniture, or electronics, to an online shopping cart and begin to check out.

If you select a BNPL option, you must complete a short application with your personal and payment information. If approved, your first payment is due at checkout. The rest are manually or automatically charged to your chosen debit or credit card.

Pros for BNPL

The main benefits of many BNPL offers include not paying interest or fees if you pay on time. The transaction is quick and seamless because many BNPL options get integrated with online checkout. Plus, if you get approved with a BNPL app, like Klarna, it’s also available for in-store shopping.

Another advantage of using a BNPL loan is that payments typically get reported to one or more nationwide credit bureaus. So, making on-time payments helps you build credit.

Cons for BNPL

While BNPL can be the right financial tool for life’s necessities, there are potential downsides. One is that using a BNPL offer that splits payments over several weeks doesn’t help you build credit because it’s not a credit account that gets reported to the credit bureaus.

Also, buying consumer goods with BNPL platforms may encourage overspending when you see an attractively low weekly payment. There are account fees if you don’t make payments on time or have enough funds in a linked account. Finder’s BNPL statistics show that 9% of Americans say they’ve made a buy now, pay later mistake.

When to use BNPL

If you’re shopping for expensive consumer goods, you may get tempted to abuse BNPL offers that ultimately hurt your finances. A good rule is to wait at least 24 hours before buying a high-priced item, so you have time to fully consider it and make sure you don’t fall prey to an impulse purchase that isn’t in your budget.

However, if you need to make an urgent purchase, such as a car repair or veterinary visit, using a BNPL offer is a convenient way to get essential services that significantly improve your quality of life without paying credit card interest.

To make sure you get accurate and helpful information, this guide has been edited by Holly Jennings as part of our fact-checking process.

Written by

Laura Adams

Money Expert and Spokesperson

Laura Adams is a money expert and spokesperson for Finder. She's one of the nation’s leading personal finance and business authorities. As an award-winning author and host of the top-rated Money Girl podcast since 2008, millions of readers, listeners, and loyal fans benefit from her practical advice. Laura is a trusted source for media and has been featured on most major news outlets, including ABC, Bloomberg, CBS, Consumer Reports, Forbes, Fortune, FOX, Money, MSN, NBC, NPR, NY Times, USA Today, US News, Wall Street Journal, Washington Post, and more. She received an MBA from the University of Florida and lives in Vero Beach, Florida. Her mission is to empower consumers to live healthy and rich lives by making the most of what they have, planning for the future, and making smart money decisions every day. See full bio