What is Buy Now, Pay Later and is it a Good Thing?

By the Pachyy Editorial Team

The Pachyy Editorial Team comprises a diverse and experienced team of writers, researchers and subject matter experts whose aim is to provide you with useful insights, guidance and commentary on all matters related to your personal finances.

Would you like to buy something now but pay for it later? With the buy now, pay later (BNPL) option, you have the flexibility to purchase items, typically online, and choose to pay for them at a later time. You can either make monthly installments called slices or pay off the full balance after 12 months.

This option is similar to getting an interest-free loan, allowing you to delay payment through third-party services like Klarna, Laybuy, Apple, and AfterPay. Some suppliers may charge a small fee for this convenience or impose a late fee if you are unable to make the repayment on time.

For example: Let’s say Jim wants to buy a new dishwasher worth $500. He has the choice to pay with cash or a credit card right away, or he can opt for the buy now, pay later option. With this option, he can receive the dishwasher today and pay back the $500 in 12 months, or he can divide the payment into five equal installments of $100 over the next five months. If he manages to pay on time, there won’t be any interest charged. However, if he misses a payment, he may incur a late fee and an annual interest rate of around 39% APR.

Important Information

  • With “Buy now, pay later,” you can make purchases today and pay for them at a later date.
  • This convenient payment option is available on various eCommerce websites and facilitated by trusted third-party providers like Klarna or Laybuy.
  • If you pay off your balance on time, “Buy now, pay later” should be interest-free.
  • Typically, these companies won’t conduct a credit check when you opt for this payment method.

What Can You Buy Now and Pay Later For?

Buy now, pay later (BNPL) is a convenient option that allows you to purchase a wide variety of items online. It’s especially popular for household goods and catalog purchases. This payment method is commonly used by Moms, young families, and young individuals. According to a recent study by the BBC, approximately 30% of people between 20 to 30 years old use BNPL at least once per year.

Here are some examples of products that you can purchase using buy now, pay later:

  • Shoes
  • Gifts
  • Kitchen appliances
  • White goods, such as refrigerators and washing machines
  • Insurance
  • Alcohol and champagne
  • New kitchens and furniture
  • Clothes
  • Jewelry

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Understanding the Interest charges on Buy Now, Pay Later

When using a buy now, pay later service, the intention is for it to be interest-free and generally cost only the price of the item itself. However, it’s important to note that if you’re unable to make the repayment, there may be interest rates of around 30% to 39% charged annually. This is combined with a one-time late fee that can be as small as $7 (by Klarna) or $8 (by Afterpay), or as high as 25% of the order amount.

It’s worth noting that these fees and charges are only applicable if the supplier has made two unsuccessful attempts to collect payment from the customer. These fees are not continuous.

From a business perspective, this payment model is quite similar to a credit card, where the service is essentially free if all payments are made on time. However, companies offering buy now, pay later services generate their revenue from customers who default on their payments, typically affecting around 10% to 20% of their total customer base.

What Are The Benefits of Buy Now, Pay Later?

Easier for everyone involved – Buy now, pay later is a great option that benefits both consumers and retailers. As a consumer, it’s always nice to be able to get something immediately and worry about payment later, whether you have the means or not. This is especially helpful for those who live paycheck to paycheck. And for retailers, it helps generate more sales and they receive the same income regardless, sometimes even getting a kickback from the BNPL partner. The BNPL company also benefits from more sales as it increases their chances of generating revenue if anyone doesn’t repay.

Can be interest-free – When used responsibly and paid on time, buy now, pay later offers 0% interest. This makes it a cheaper alternative to loans or credit cards. You can receive your goods today and pay for them in a couple of months or 12 months later. It not only serves as a convenient option for small purchases or gifts but also helps with cash flow and budgeting around the house when making larger purchases of $1,000 or more.

Considers all credit scores – While a soft credit check is performed, this doesn’t exclude people with bad credit histories. So even if you’ve been declined for certain loans or credit cards, you may have better success with BNPL products. If you were planning on using a credit card or loan to purchase something, why not just buy it directly with BNPL? Just keep in mind that the amount you can spend will be reflected in the credit limit offered by the provider.

Very fast process – Using BNPL is often automated and streamlined, making it incredibly fast and seamless when buying items online. It’s almost as easy to use as paying with a credit card or PayPal.

Understanding the Risks of Buy Now, Pay Later

Missed payments can lead to late fees and penalties: It’s important to remember that even though you have the option to pay in installments or after 12 months, forgetting to make a payment can result in extra charges. If you find yourself accumulating a debt of $1,000 or more and are unable to afford it due to unforeseen circumstances like job loss or unexpected expenses, this can become troublesome. While the rates and penalties for missing payments are generally low, it’s still something to keep in mind when managing your finances.

Tracking multiple payments can be challenging: If you use multiple BNPL services, it can be difficult to keep track of all your debts and credits in one place. To avoid any surprises or unexpected expenses, it might be helpful to create a separate list or make notes to stay organized, especially if you’re sticking to a budget.

Payments may still be required for returned items: Sometimes, there can be a delay in communication between BNPL providers and retailers, resulting in continued repayments even if you return an item promptly. In such cases, it’s important to notify both the provider and the retailer to ensure the repayments are stopped. However, it’s crucial to regularly check your bank statements and confirm payments to avoid any unnecessary charges.

No rewards, miles, or cash back benefits: Unlike credit cards, buy now, pay later options typically do not offer rewards such as air miles, points, or cash back. While this might not be a major concern for everyone, if you regularly make purchases worth several hundred dollars, you could be missing out on accumulating valuable points!

Do Buy Now, Pay Later Services Check Your Credit Score?

When you use buy now, pay later services, they typically conduct a ‘soft credit check’ to verify some basic information about you. The best part is that this check doesn’t have any negative impact on your credit score and it quickly disappears from your credit report. So, you can enjoy the benefits of BNPL without worrying about your credit score.

Unlike personal loans or other financial products that require a ‘hard credit search’ and can temporarily lower your credit score, soft credit checks used by BNPL services don’t have that effect. This means that even if you have bad credit, you can still be eligible and approved for BNPL services, which can be a huge advantage.

In addition to credit checks, these services also run affordability checks. They set a credit limit for you based on your financial situation, ensuring that you won’t spend beyond your means. This helps you stay on top of your finances and make responsible purchase decisions.

Are Buy Now, Pay Later Services Regulated?

Currently, the buy now, pay later industry operates without specific regulations. This means that they are not subject to traditional oversight by entities like the SEC or FCA (in Britain) due to their practice of offering interest-free payment plans that span up to 12 months. However, efforts are underway to introduce some form of soft regulation. The aim is to provide better awareness to customers regarding the potential risks associated with non-repayment and to conduct basic credit checks. This approach ensures that individuals can comfortably afford the items they plan to purchase.

How Much Can You Buy Using Buy Now, Pay Later?

When it comes to buy now, pay later, the amount you can purchase may differ depending on the provider, the products offered, and your credit score. However, it’s possible to buy items worth $1,000, $5,000, $10,000, or even more, such as household items or jewelry. Starting from just $10, you have various options available to suit your needs.

Understanding the Difference between Buy Now, Pay Later and Buying Something on Finance

When it comes to purchasing items, it’s important to know the distinctions between buy now, pay later and buying something on finance. While both options offer benefits, they cater to different needs and circumstances.

Buy now, pay later is a convenient option tailored for smaller purchases made online. It allows you to make a purchase immediately and delay the payment, usually without any interest or fees if paid within a specific timeframe.

In contrast, buying something on finance is a more common approach for larger in-store purchases. This is often the case when buying items like a new kitchen or a brand new car, where the cost may require a loan to cover the expense.

Unlike buy now, pay later, which typically lasts for a shorter duration, buying something on finance involves a longer repayment period. It can extend beyond a year and may range from 3, 5, or even more years.

Understanding these distinctions can help you make informed decisions about your purchases and choose the most suitable payment option based on your needs and the nature of the item you wish to buy.

Is Buy Now, Pay Later a Good Thing?

Buy now, pay later can be a wonderful option! It’s a fantastic way to purchase everyday items and indulge in impulsive buys online. Let’s face it, who wouldn’t love the convenience of getting something today and worrying about the payment later?

BNPL benefits both retailers and sellers, as it increases their chances of making sales with a user-friendly payment process. As consumers, if you can pay off your purchases on time and within your budget, then yes, it can be a positive experience.

However, it’s important to approach BNPL with caution. Don’t get carried away and accumulate excessive debt or exceed your credit limit. Being unregulated means that there are no specific avenues for complaints if you find yourself overwhelmed and unable to make repayments. So, to avoid late fees or penalties, always keep a close watch on your purchases! Additionally, if you already have a credit card with a low interest rate, you can always use that as an alternative.

Sumbit an Application

Our application is user friendly, can be completed in under 5 minuets, will have zero effect on your credit score and is completely free!

Sit Back and Let Us Work Our Magic!

Once you have submitted your application, we will evaluate all options in real time and notifiy you within a few minuets of the lowest APR loans avaliable for you.

Receive your Cash

Subject to further checks and documentation, your lender of choice will wire cash to your checking account.

Apply For Cash Now

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