Buy Now Pay Later

Buy Now Pay Later summary:

• Buy now pay later is a short-term financing arrangement where you pay off a purchase in installments.

• You typically make your first payment at the time of purchase and your remaining payments over a few weeks or months.

• Buy now pay later plans don't charge fees or interest, but both could apply if you fall behind on your payments.

Buy now pay later definition and meaning

Buy now pay later (BNPL) is a financing arrangement that lets you pay off a purchase over time with a series of installment payments. You typically apply for a BNPL plan at the time of purchase and make your first payment on the spot. You then make your remaining payments over a few weeks or months. 

Key concept: BNPL is a way to pay for purchases in installments, typically with no interest charges.

More on buy now pay later

Buy now pay later financing could make large purchases feel more affordable by letting you spread the cost over time. Many BNPL plans, especially for short-term installments, don't charge any interest or financing fees. Unlike applying for a new credit card, most BNPL services do a soft inquiry that doesn't affect your credit score.

Buy now pay later key features

A buy now pay later plan typically gives you:

• Interest-free payments if you pay on time

• Approval at the time of your application with no hard inquiry on your credit report

• Anywhere from a few weeks to a few months to pay off your purchase in full

Buy now pay later: a comprehensive breakdown

Buy now pay later allows you to spread out payments over several weeks or months, making it easier to swing a large purchase. You can apply for a BNPL plan at the time you're completing a purchase, and you won't need to go through a hard credit check.

If you're approved, you'll generally make your first payment right away and then make your remaining payments over a period of several weeks to several months. Most BNPL agreements give you six weeks to three months to pay off your purchase, but some arrangements may be longer. 

If you make your buy now pay later payments on time, there is usually no interest or fees tacked on. But if you fall behind on payments, you could face late fees and interest that add to your costs. 

On-time BNPL payments are not always reported to the credit bureaus, so they won't necessarily benefit your credit score. However, late buy now pay later payments are very commonly reported to the credit bureaus. Falling behind on a buy now pay later could damage your credit, making it harder to get approved for a personal loan in the future. 

Read more: Is buy now, pay later too good to be true?

Real-life example of buy now, pay later

Say you need to replace your washing machine and a new one costs $800. You have $200 in savings, but you're willing to work a side hustle in the coming weeks to make up the difference. 

A buy now pay later plan could let you pay for your washing machine in four equal installments. Your first $200 payment would be due at the time of purchase, and your remaining three payments of $200 would be due every two weeks from then on. You could make your first payment, pick up a side gig to earn the rest of the money, and make your three remaining payments on time to avoid interest, fees, and credit score damage.