The 411 on Buy Now, Pay Later Platforms

items in a store

There is an array of “buy now, pay later” (BNPL) platforms that have been popping up over the last few years. As more and more people are shopping online these days, many are opting for this form of payment. BNPL platforms are sort of like layaway plans. You pay in installments. But in the case of BNPL, you get your merchandise right away, unlike layaway plans which hold your merchandise until you have paid off the balance.

Here is how BNPL platforms work and what you should know about them.

Who They Are

There a number of BNPL platforms, but here are the most popular:

Afterpay: Lets you pay off your purchases over the course of eight weeks. Founded in 2015 in Australia, the company has expanded to the U.S. and has more than 8.5 million active users worldwide customers. It works with more than 7,200 retailers serving the U.S. You can buy everything from clothes and makeup to pharmaceuticals and flights.

Klarna: Is a Swedish bank that offers online financial services such as payments for online storefronts, direct payments, and post purchase payments. Klarna is in more 205,000 online stores such as Abercrombie and Fitch, Coach, and Guess and has more than 85 million users globally.

PayPal Credit: This is a proprietary payment method offered on the websites of many well-known merchants, including Walmart, Home Depot, USPS, JetBlue Airways, and Hotels.com. The site offers consumers a line of revolving credit through Synchrony Bank.

Affirm: Affirm is a privately-held financial tech company based in San Francisco. It was founded in 2012 and offers installment loans for consumers to use at the point of sale. Affirm partners with more than 3,000 merchants from well-known brands in home furnishings, travel, personal fitness, electronics, apparel, and beauty, and more.

How They Work

BNPL services allow consumers to split the price of a purchase into several payments without incurring interest charges.

“Generally the BNPL service will break up the payment into 4 or 6 equal payments, the total of which will add up to the cost had it all been paid at once. In that sense, there’s no additional cost in terms of interest as long as all the payments are made on time. They do charge a flat fee usually if a payment is missed, and interest can be incurred if delinquency is high,” explains CPA and e-commerce consultant Abir Syed of UpCounting .com.

Credit Score Impact

There should not be any real impact on your credit score unless you become delinquent.

“They generally can’t help, but can only hurt. In most cases though they’ll have no impact. That’s because the BNPL service generally reserves the right to report delinquency, which will hurt your credit score,” says Syed. “But will not report positive behavior like high usage and on time payments. For people who use BNPL but aren’t delinquent, they’ll simply have no credit score impact, rather than seeing a positive one.”

Fees

“The fee for the BNPL services are generally incurred by the retailer, so a customer gets the financing for free. They only have to pay fees if they miss a payment,” Syed. The late fee can be a bit steep.

Caution

Because of the convenience of BNPL platforms, it is easy to over extend yourself financially.

“Services like Afterpay are handy when used wisely. What makes these services so appealing is that they’re generally free to use unless you pay late. If you miss a payment, you’ll be charged a late payment fee and may be subject to other penalties, depending on the service,” warns Sean Messier, associate editor of Credit Card Insider. “Regardless of your approach, do not buy anything you’re not confident you can pay off without missing a payment.”