by J.D. Shultz

Millennials and Gen Z get the blame (or credit) for bringing back a lot of stuff from the past.  Like vinyl records. And fanny packs. And the latest might be layaway — but a new version of layaway tweaked for the modern era — in the form of Buy Now, Pay Later.

Layaway thrived after the Great Depression because people wanted and needed things, and businesses wanted and needed to sell things. So businesses would offer interest-free payments on larger purchases for customers. The only negative: the customer couldn’t take the item home until it was paid in full.

Credit cards largely replaced layaway in the '80s, because now people could take their purchases home instantly. The negative was that tiny little issue of people being stretched in a crescendo of soaring fees, high interest payments, and plummeting credit scores.

Now, there's a new marriage of the best of layaway and the best of credit with Buy Now, Pay Later (BNPL) services. These services, which you’ve most likely seen popping up everywhere, allow consumers to purchase items like they would with a credit card, usually with a portion of it paid up front and the rest paid back over a short period of time, often with zero interest. Essentially, it’s a short-term, micro-credit loan you can use for common purchases. And unlike layaway of old, with BNPL, you get the product right away.

BNPL services have been taking off recently, as people — particularly younger people — are utilizing them to make larger purchases without having to deal with significant credit card interest. Some of these Buy Now, Pay Later services have been around for several years, but the circumstances surrounding the pandemic breathed a lot of life into them and accelerated their growth. And now, giants like Apple, Amazon, and Square want in on the action, so the stage is set for this to become a lot bigger than just a passing fad. 

It might even change the very nature of credit.

How does Buy Now, Pay Later work?

Buy Now, Pay Later services all offer a way to finance purchases, large and small — and they allow you to do it while dodging a credit card. That’s great news if you don't have decent credit, you want to avoid paying interest on a purchase, you prefer more manageable monthly payments to big one-time payments, or you just think credit cards are a plastic Satan, holding a blank check, with a spot-on pronunciation of Hermès.

The BNPL services are easy to sign-up for (if you need to “sign-up” at all), easy to use, and can be set-up with a soft (if any) credit check — meaning a credit check that doesn’t affect your credit score. They involve regular payments that are predictable and fee-free, and are usually handled automatically through a linked bank account.

Most work the same way:  Shop online at participating retail stores or directly from the BNPL service’s app or website... select the BNPL payment option at checkout... get a quick decision on whether you’re approved... agree to your payment schedule... and confirm.

You make a deposit or the first month’s payment and the rest of the balance will be deducted from your account on a posted, agreed-upon schedule until it’s paid in full.

Things are evolving quickly, but here's a comprehensive, up-to-date rundown of how each service could work in your virtual wallet.  

The Top 10 Buy Now, Pay Later Services, and What Each One Offers

Affirm:  “Best for Bigger Purchases Over a Longer Term”

How Affirm works

• Installments: Variable, and potentially very long term ⭐

• Pay Up-Front: Variable

• Interest: 0%; or 10% to 30% for longer financing or people with worse credit

• Late Fee: None

• Credit Check: Soft inquiry

• Credit Requirements: No minimum score

• Reporting to Credit Bureaus: No positive reporting, potential negative reporting

• Notable Connected Retailers: Amazon.com, Walmart.com, Peloton, Expedia, Pottery Barn, or virtually any retailer when using the Affirm app

Search more than 1,000 stores offering Affirm with Knoji’s Affirm merchants search engine

About the Affirm Buy Now, Pay Later service

Affirm was one of the first names in the BNPL world (founded in 2012), and being more established than its Buy Now, Pay Later competitors has its benefits. In addition to appearing as a payment option at checkout for hundreds of major online retailers, they have deals in place to work with Shopify, where they provide the backbone for its Shop Pay Installments. They also just closed on a partnership with Amazon — a trillion dollar behemoth, which, according to folklore, was once just a modest online bookseller — which means Affirm could easily become the biggest household name in the BNPL space. (You can check out some reviews on Affirm here on Knoji.)

Affirm’s offerings can vary by merchant, but generally you can get a financing plan for $100 up to $5,000, over three to 12 months, at 0% on the short end (depending on loan length and credit) or 10% to 30% interest for longer pay periods and/or with lesser credit.

Affirm boasts a purchase limit that can grow all the way up to $17,500 — the largest we’ve seen of any of the BNPL services — and if you do need a longer term for a bigger purchase, you’ll only have to pay simple interest, which means that your charges won't compound. They also make it clear that you will never pay more interest than you agree to on day one. Keep an eye out for Affirm promo codes which can get you bonuses and discounts on your purchases.

Klarna:  “Best for Multiple Repayment Options”

How Klarna works

• Installments: Variable ⭐

• Pay Up-Front: Variable

• Interest: 0% to 30%

• Late Fee: $0, then $7, for longer financing up to $35

• Credit Check: Soft inquiry for pay in four, hard inquiry for financing

• Credit Requirements: No minimum score

• Reporting to Credit Bureaus: No positive reporting, potential negative reporting

• Notable Connected Retailers: Etsy, Macy's, Sephora, Bed Bath & Beyond, Nike, Tommy Hilfiger or virtually any retailer when using the Klarna app, website, or browser extension

Search more than 900 stores offering Klarna with Knoji’s Klarna merchants search engine

About the Klarna Buy Now, Pay Later service

Klarna is unique in that you can approach your repayment in two different ways:  There’s the standard four installment plan, which requires a deposit.  Or, you can forgo the immediate down payment for a "Pay in 30" option, which gives you 30 days, interest-free, to pay the balance in full. The latter is an intriguing option for something returnable like clothing, because it lets you try something out, and decide if you want it before paying anything.  (The trade-off is that you have to pay the entire balance within a month instead of six weeks.) Also, because returns can be tricky with BNPL, which we’ll cover later in this article, deferring payments until after you’ve decided whether or not to return a product could make life easier. 

Alternatively, Klarna also offers longer term, six- to 36-month financing, which is not interest-free.  The interest rate on those purchases is variable (think 19.99% APR) up to 30%, which could be even higher than a credit card.

Like several services, if Klarna isn’t offered by a merchant at checkout, Klarna has a virtual card that lets you delay payments as long as credit cards are accepted. You can use Klarna’s app for BNPL when you’re shopping at a store in person, and Klarna also has a browser extension available to make it easier to use their service wherever you’re shopping online.

There's also a free and lucrative rewards program called Vibe.  Among other things, you get a $5 welcome reward from Klarna as soon as you complete your first purchase as a member (we have more details, plus other offers for Klarna, on our Klarna promo codes page).  You earn one “vibe” for every $1 you spend with Klarna, which you can collect and spend on perks in the future. That rewards program just might be an incentive for you to use Klarna as your BNPL solution everywhere you shop, even if some stores are pushing Klarna alternatives like Affirm or Afterpay. (Check out our Klarna reviews for more details on why people are, or aren't, going with the service.)

Afterpay:  “Best for Shoppers with No Credit History”

How Afterpay works

• Installments: Four payments over six weeks

• Pay Up-Front: 25%

• Interest: 0%

• Late Fee: $10 or up to 25% of the purchase price

• Credit Check: No inquiry ⭐

• Credit Requirements: No minimum score (or score at all)

• Reporting to Credit Bureaus: No positive reporting, potential negative reporting

• Notable Connected Retailers: Old Navy, Bed Bath & Beyond, Forever 21, Adidas (or virtually any retailer when using the Afterpay app)

Search more than 10,000 stores offering Afterpay with Knoji’s Afterpay merchants search engine

About the Afterpay Buy Now, Pay Later service

Afterpay can be great for students and others with little credit history (or little good credit history), because they don't even do a soft check of your credit score, which is rare among lenders. And to make sure your newfound flexibility to buy expensive things doesn't get out of control, they'll set reasonable spending limits which gradually increase over time.

Unfortunately, they don't offer a way for you to build your credit, but they do have another perk:  A reward program called Pulse Rewards, which you can opt into for exclusive offers, and accrue points.  Every eligible on-time payment earns you 10 points.  You can cash the points in later for deals or various Afterpay benefits, like delayed payments. 

Afterpay is simple (and popular — check out these Afterpay reviews) because it only offers one plan: Make your first payment on checkout and the next three payments over six weeks. However, if you’ve used Afterpay for a while and have a strong repayment history, your payments may start after two weeks instead. That means a deposit isn’t drawn the day you make the purchase, and, since everything is pushed back two weeks, you get a slightly longer repayment period.

Afterpay has an app which allows you to shop at most stores online. They also offer a virtual card you can use for in-person purchases and at stores that don’t have Afterpay built into their checkout.

Afterpay was recently acquired by Square in a $29 billion deal. Square plans to integrate the service into both its seller and Cash App ecosystems — so expect to see a lot more of Afterpay in the near future.

Now that you've read about the three biggest players currently in the Buy Now, Pay Later space, if you'd like to dig into their differences even further, you can check out more comparisons like Afterpay vs. Klarna, Affirm vs. Klarna, and Affirm vs. Afterpay.

Sezzle:  “Best for Building Credit” 

How Sezzle works

• Installments: Four payments over six weeks (or more)

• Pay Up-Front: 25%

• Interest: 0%

• Late Fee: $10

• Credit Check: Soft inquiry

• Credit Requirements: No minimum score

• Reporting to Credit Bureaus: Optional positive reporting ⭐, potential negative reporting

• Notable Connected Retailers: Umbro, GameStop, Altitude Sports, Public Rec (or virtually any retailer when using the Sezzle app)

Search more than 400 stores offering Sezzle with Knoji’s Sezzle merchants search engine

About the Sezzle Buy Now, Pay Later service

Klarna may have the most payment plan options, but Sezzle boasts the most flexible plans. Initially, Sezzle just does the standard four installment / six week thing, but they also give you the option of pushing your due dates back, up to two weeks.  The first reschedule per purchase is free, and at that time, you can also reschedule your subsequent payments for free.  After that, each additional reschedule will cost you $5.00.  

Spending limits on Sezzle start low, around $50 to $200 initially.

Sezzle also has an optional program called "Sezzle Up," where they will report your payments to the credit bureaus.  This can be a great bonus if you make your payments on-time and want to build your credit. But it's not something you should risk if you struggle to make payments on time, because if you fall behind, your credit will be dinged.

There’s another reason to consider Sezzle Up:  They’ll increase your spending limit.

(Note: If you opt in to Sezzle Up, and you later decide that you don't want your payments reported, there’s no quick way to back out of it.  In that case, Sezzle says you’d need to close your existing account.  So make sure it’s something that you’re ready to do.)

Like many others, Sezzle offers a virtual card to use at stores that haven’t partnered with Sezzle to offer the service directly at checkout.

Zip (Previously QuadPay):  “Best for Ease of Use” 

How Zip (formerly QuadPay) works

• Installments: Four

• Pay Up-Front: 25%

• Interest: 0%, but $1 fee per payment

• Late Fee: $7, waived if paid within 10 days

• Credit Check: Soft inquiry

• Credit Requirements: No minimum score

• Reporting to Credit Bureaus: No positive reports, potential negative reporting

• Notable Connected Retailers: Airbnb, Delta, Fashion Nova, Macy's, Newegg, Sears, or virtually any retailer that accepts Visa ⭐

Search more than 300 stores offering Zip with Knoji’s Zip merchants search engine

About the Zip Buy Now, Pay Later service

Zip, which was previously known as QuadPay, gets high marks for their streamlined process. You can shop and defer payments anywhere that accepts Visa. If the store doesn’t have a Zip integration, Zip will create a virtual card for you to make the purchase. (Note: They do block a few "restricted" items like e-cigs, vaping, and cannabis.)

So you sign up, link your credit or debit card, and then pay with a virtual card.  That’s for both online purchases through their app and for in-store purchases anywhere Visa is accepted.  All purchases are split into four payments, scheduled over a six-week period.  There’s no hard credit check, and no interest when the payments are made on time.

There’s one downside:  Zip charges a $1 platform fee with every installment payment, and you can't pay early in a lump sum.  So with four installments, that's $4 for every purchase. That’s not much, but most of the other services charge nothing.

PayPal Pay in 4:  “Best for When You’re Already Paying with PayPal”

How PayPay Pay in 4 Works

• Installments: Four

• Pay Up-Front: 25%

• Interest: 0%

• Late Fee: Discontinued as of October 1st, 2021

• Credit Check: Soft inquiry

• Credit Requirements: No minimum score

• Reporting to Credit Bureaus: No positive reports, potential negative reporting

• Notable Connected Retailers:  Fossil, Bed Bath & Beyond, Lands' End, ALDO, and any other store that accepts PayPal ⭐

Search more than 20,000 stores offering PayPal with Knoji’s PayPal merchants search engine

About PayPay’s Pay in 4 Buy Now, Pay Later service

PayPal Pay in 4 has the benefit of being the BNPL offering of a familiar, trusted name in the payments space. If you’re already going to pay for something with PayPal, it’s just a few clicks more to use the Pay in 4 service. And since so many stores allow you to pay with PayPal, that just might make the Pay in 4 process the most convenient BNPL solution of all.

Also, as of October 1st, 2021, PayPal decided to get rid of late fees on Buy Now, Pay Later services. (It’s not exactly clear at what point they’ll stop being cool with people skipping payments and come after you, but at least you won’t collect late fees along the way.)

Customers can only use PayPal’s Pay in 4 service on purchases between $30 and $1,500, which is on the low end compared to services like Affirm.  It’s another four installment / six week arrangement. To use Pay in 4, you must have a PayPal account in good standing, or sign up at the time of purchase.

PayPal also has another product called PayPal Credit, which has financing options for larger purchases.  There's interest-free financing if the balance is paid off within six months, which is a good deal. Otherwise the interest rate is around 23.99%. With PayPal Credit, the minimum purchase is $99, a monthly payment is required, and if you miss a payment your late fee could be up to $40.

PayPal has the advantage of being able to lean on its gigantic infrastructure, so it's accepted at the vast majority of online retailers as well as many physical store chains.

SplitIt:  “Best for Earning Credit Card Points”

How SplitIt works

• Installments: Three to 24

• Pay Up-Front: Variable

• Interest: 0%

• Late Fee: None

• Credit Inquiry: None

• Credit Requirements: Visa or Mastercard required ⭐

• Reporting to Credit Bureaus: None, but since purchases are made on your credit card, these purchases could potentially help your credit score

• Notable Connected Retailers: Echelon Fitness, GlassesUSA, REST, Instasmile

Search more than 60 stores offering SplitIt with Knoji’s SplitIt merchants search engine

About SplitIt’s Buy Now, Pay Later service

SplitIt is quite different from the other BNPL services, which could be a good thing if you’re not credit averse and you want to earn credit card points.

To use SplitIt, you need to have a credit card (Visa or Mastercard, not American Express or Discover), because SplitIt utilizes your own credit and charges your purchases in installments, paid back over anywhere from three to 24 months.  There are no fees or interest beyond what your credit card is already charging and there are no credit checks (because they're using your existing credit). 

Basically, if you buy something for $300, rather than having to put that $300 on a credit card and make payments that way, you could divide it up with SplitIt to only have a more manageable $60 per month added to your credit card for five months. 

So what's the catch?  Retailers have to accept SplitIt — unlike many of the others, you can’t use it basically anywhere with an app or virtual card — and SplitIt’s partnerships are currently limited.  The retailers also dictate the terms, so they decide how many installments you can choose, it's typically not up to you.

Also, this arrangement isn't that different from just using a credit card, which is one of the things people are trying to avoid with BNPL.

Still, it's referred to by some as the "responsible Buy Now, Pay Later option," because you're covering everything on your own credit, just broken down over time.  And since this is your card, you just pay it off as you normally would, earn your usual rewards, and slowly improve your credit score.

Perpay:  “Best for Shoppers with a Job But Bad Credit”

How PerPay works

• Installments: Eight

• Pay Up-Front: $0, but items don’t ship until first payment (next payday)

• Late Fee: None

• Interest: 0%

• Credit Inquiry: None

• Credit Requirements: None, but requires verified income ⭐

• Reporting to Credit Bureaus: Potential positive reporting and potential negative reporting

• Notable Connected Retailers: Echelon Fitness, GlassesUSA, REST, Instasmile, and many other stores using the PerPay app

About PerPay’s Buy Now, Pay Later service

Perpay could be an option for anyone with shaky credit, because it bypasses credit altogether and simply deducts scheduled payments from a payroll direct deposit.  Other forms of payment are not accepted unless you are making extra payments.

There's also an interesting quirk with that.  Items are not shipped until your first payment is made, and since that wouldn’t happen until your next payday, you might have to wait a week or more for that to happen.

There are also strict limits at the start.  Spending is restricted to the stores available in Perpay's marketplace. And spending amounts are calculated and limited based on your current income.

There are some big positives, too. Payments are broken into a more manageable eight equal payments, not four like so many of the other BNPL services.  And Perpay helps customers build credit by reporting your payment history to the credit bureaus, although they wait to do that until after you complete four months of on-time payments, with a combined total of at least $200.  (They just want to make sure you can walk before they’re clocking your sprint time.)

Amazon Monthly Payments:  “Best for Amazon Buy Now, Pay Later Convenience”

How Amazon Monthly Payments works

Installments: Five

Pay Up-Front: 20%

Late Fee: None

Interest: 0%

Credit Inquiry: None (but you do need a credit card)

Credit Requirements: Credit card required

Reporting to Credit Bureaus: No positive reporting, potential negative reporting

Notable Connected Retailers: Amazon ⭐

About Amazon’s Buy Now, Pay Later service

As the familiarity and demand increases for financed purchases, it’s not surprising that some larger retailers are already offering their own deferred payment options.  Especially if it lets them sidestep the commission fees the BNPL services charge businesses.

Amazon’s in-house “Monthly Payments” service works a lot like the payment plans offered by BNPL apps, in that you can break up a purchase into separate payments.

Here’s how it works:  You split a purchase into five payments.  You'll make the first when the item ships, then four additional payments over the next four months using a credit card linked to your Amazon account.  There’s no interest, but since your payments are going on your credit card, you’ll have to deal with standard interest there.

Amazon’s service doesn’t impact your credit, and there’s no minimum purchase required.  And like SplitIt, since the payments are applied to a credit card, you will be able to earn any rewards that the card offers.  (You do need a credit card.  Debit cards aren’t accepted for this program.)

The downside is the service is limited to qualifying new products sold and shipped by Amazon, as well as qualifying “certified refurbished” Amazon devices.  In other words, if you want to defer a payment on an Amazon purchase that DOESN’T qualify, you’d have to go through another BNPL app. 

And well, speak of the devil, Amazon just linked arms with Affirm to be their official BNPL provider.  The specifics haven’t been announced, but it sounds like Affirm will be taking over Amazon’s Monthly Payments program, and they’re expanding it to most purchases over $50.  (So NOT that pack of Sharpies you just bought.)

So… stay tuned. Amazon’s partnership with Affirm signals serious interest in BNPL, but we don’t know all of the nuances of how it’s going to work just yet.

Apple:  “Best for... ???”

This could be a game-changer:  Apple announced in July 2021 they’re developing a BNPL service which will let consumers pay for any Apple Pay purchase in installments. Apparently, it’s known internally as “Apple Pay Later,” but there’s still a chance they get more creative with the name. (Or less creative. Remember when everyone was convinced the third iPad would be called “iPad HD” but instead Apple just went with “New iPad”?)

Basically, when a user makes a purchase through Apple Pay on their Apple device, they will have the option to pay for it either across four, interest-free payments made every two weeks, or across several months with interest.  But there are no specifics yet.

Apple already offers monthly installments on their Apple Card for purchases of their own products, but this would expand that technology to any Apple Pay transaction.

There’s no indication on when Apple will be launching this service.

One last thing:  To be accepted into the program, shoppers will need to submit a copy of their ID.

Other Buy Now, Pay Later Companies

We’ve highlighted the most notable BNPL payment services at this time, but there are many others.  Some of them include:

Uplift:  A BNPL service focused primarily on travel. Uplift is currently offering installment loans integrated through travel merchants’ checkout pages (including lots of major airlines and travel booking services).  These loans have nine- to 12-month terms and may or may not charge interest, depending on your credit and the merchant.

Four:  Standard four payments over six weeks.  No interest, and no credit check. Search the stores offering Four with Knoji’s Four merchants search engine.

Bread:  Standard four payments, or longer term financing with interest. At the present, they seem focused on signing up more merchants (their homepage is a more B2B presentation than one directed at shoppers like all of the other BNPL services). Search more than 70 stores offering Bread with Knoji’s Bread merchants search engine.

Zebit:  Standard four payments, but over six months at 0% APR.  Most approved customers receive $1,000 to $2,500 for an initial spending limit. 

There are also applications like Walnut (healthcare) and Greensky (home improvement, check out Knoji’s Greensky merchants search engine) that partner directly with the companies that consumers use to get these services, which gives them a significant distribution advantage over banks.  Naturally, this is an adjacent space from the typical BNPL offerings, because the costs are a LOT higher than a hundred bucks here and there.

Frequently Asked Questions about Buy Now, Pay Later

What's the catch with Buy Now, Pay Later services?

The catch with Buy Now, Pay Later is simple: While you are getting an interest-free loan with no hard credit check, you run the risk of overextending yourself beyond your means, buying things you can’t afford, and maybe even causing a negative effect on your credit without a chance to make a positive impact on your credit if you do everything correctly.

On some level, Buy Now, Pay Later seems too good to be true. Get interest-free loans with no fees and no hard credit checks — seems like all upside. And with that, the catches are pretty minimal; really, it boils down to the same catches you’d encounter with credit cards.

Buy Now, Pay Later may offer a casual alternative to credit cards, and like credit cards, they may be able to delay the pain, but they can't give you the ability to afford things that you can't afford. If anything, their ease of use could lead to a place where you’re spending beyond your means. 

While the BNPL services offer no interest and fees as long as you meet their (pretty tight) timetables, if you start buying more than you can pay off, you could be subject to fees and higher interest rates.  Plus, if your bank account runs dry, your bank can charge overdraft fees when the BNPL services try to collect.  And ultimately, if you don't pay, some BNPL services will file negative reports with the credit bureaus. (Meaning most of the services won’t have a positive effect on your credit score, but could have a negative effect on your credit score.)

So there's no real catch — until you fail to make the payments you promised to make or spend more than you should be spending.

How can Buy Now, Pay Later affect my credit?

One perk of BNPL is most services will only do a soft credit inquiry when you join, which doesn't impact your credit.  New credit cards usually require hard credit inquiries, which can take a small, temporary bite out of your credit score. (And a bigger bite if you've had multiple hard credit pulls within the past two years.)

Which means that unlike credit cards, you could have multiple loans going at multiple BNPL services, provided they only make that initial soft credit check.

Although the BNPL services can be pretty generous with late fees and missed payments, ultimately most will report non-payers to the credit bureaus. On the flipside, only a few will make positive reports if you make regular, on-time payments, which could be a boost to your score, and help build credit for future loans and mortgages.

Overall, though, if you use the biggest BNPL names and make your payments on time, the services will make no positive or negative impact on your credit.

Can you use a Buy Now, Pay Later provider if a store isn’t offering that particular provider at checkout?

At this point, most eCommerce stores are offering one (or more) BNPL services at checkout. But if you want to use one in particular — maybe you like Klarna for its rewards, or Affirm for its higher loan limits and payment lengths — and it’s not offered by a merchant, can you still use it?

For many of the bigger Buy Now, Pay Later services, the answer is yes. They can issue you a virtual credit card number, which you can use at checkout. That process isn’t as tidy as just using the BNPL service that’s baked into the merchant’s checkout, but it will allow you to stick with the service you want. (Here's our table with a comparison of the Buy Now, Pay Later services for more context.)

How do returns work with BNPL purchases?

For now, returns can be clunky and time-consuming with BNPL purchases, depending on the situation. The problem is: even if the retailer accepts the return, it won't automatically release you from the financing arrangement you made, so you'll also have to prove to the BNPL service that you returned the item.

This process will probably improve over time, especially since services are partnering with retailers, and those relationships should streamline the process.

Also, Affirm acquired Returnly, a company that manages online returns and post-purchase payments.  So other services will also look for solutions to ensure that returns are as headache-free as possible.

For now, though, expect a minor headache if you try to return a BNPL item, and be positively surprised if the process goes smoothly.

Will you be penalized for pre-paying what you owe on a Buy Now, Pay Later loan?

If you score a bonus at work, you might decide to pay off your debts.  But even though that seems like a good thing all around, you do need to know if that's cool with your BNPL service (the major ones seem fine with that; after all, it’s an interest-free loan so it’s in their best interest to have you pay it off).

When does it make sense to pay with Buy Now, Pay Later vs. credit card or a store credit card?

If you choose to utilize BNPL alongside your credit and store cards, make sure to weigh the benefits of each.  Store cards may provide loyalty discounts or points, and some credit cards offer cash back, travel miles, or other perks if you pay through them. Credit card purchases can also help your credit score if you’re making regular payments; BNPL purchases largely will not.

For larger purchases you might not be able to pay in full immediately on your credit card, BNPL is a strong alternative thanks to its zero interest offering. Of course, that means you won’t get the credit card points for it. Weigh your perks, payoff timetable, and spending means accordingly.

Who can get approved for Buy Now, Pay Later?

Most people will be approved to use Buy Now, Pay Later, especially if it's a modest initial purchase; assume that if you’ve been approved for a credit card, you’ll almost certainly get approved for BNPL. However, you may not be able to make an expensive purchase until you’ve used the service for a while, and have proven that you can reliably follow through with your payments. Some BNPL services, including Sezzle and PerPay, are particularly focused on serving shoppers with bad or no credit.

How do Buy Now, Pay Later companies make money?

Buy Now, Pay Later companies offer interest-free loans and some even waive late fees. So how do they make money? Most of the money these services generate comes from the processing fees they charge retailers, not fees they charge you. Merchants pay BNPL companies roughly 2% to 8% of the transaction amount, while credit cards charge a little less, around 1% to 3%. (Of course, unlike BNPL services, credit cards are hitting shoppers with fees and interest to more than make up for the difference.)

The transaction fees are one of the big reasons there’s such a rush amongst the BNPL services right now to enlist as many merchants as possible. They all want to reach the level of the Visas, Mastercards, and AMEXs of the world — where customer demand is so high, retailers have no choice but to offer them and pay their fees.

BNPL can get away with higher rates at the moment, because they're promising stores they’ll bring in customers like you, increase transaction rates, and drive higher purchases (after all, it’s a lot easier to buy the $1,000 iPhone than the $800 one when the difference is just $8.33 per month for two years).

Buy Now, Pay Later:  Where does it go from here?

With all the action and investment in the Buy Now, Pay Later space, it's almost impossible to imagine it doing anything but grow. And once it's had a chance to carve out an even greater niche, it'll likely evolve into something more dynamic than just (mostly) six-week interest-free loans.

For a lot of young people, layaway is a relic that's been relegated to period dramas set in department stores — and credit cards are dour bellhops carrying a lot of baggage. BNPL isn’t just a viable alternative — it’s well on its way to becoming the go-to.

Streamlining the shopping process

The key for BNPL is to "do the work."  No one wants to be left standing at the checkout — physically or virtually — searching through apps, waiting for approvals, reviewing plan options, and reading fine print. No one wants to waste their time sorting out a return with multiple parties, and no one wants to lose track of what they owe, who they owe, and what’s being drawn from their account when.

After streamlining ease of use, it'd be nice to see them expand their pool, and offer attractions for people who don’t need the financing, but who are budget-conscious, or just like the convenience of smooth digital payments.

BNPL services are already venturing into these areas with loyalty programs and by partnering with other apps and services to make things like returns easier.  And they could really take aim at the credit card companies if they could wander onto their turf with cash back and purchase protection.

Becoming more than just niche payment providers

The BNPL services are all working to position themselves as more than just a place to get a quick, interest-free loan on a modest payment.

In an interview with The Information in August 2021, Klarna’s head of North American operations, David Sykes, said the company is “moving away from just being a payment option… we really don’t believe splitting something up into four [payments] in and of itself is enough, because anybody can do that. What we see with our product is, some people do it because they like to track their packages. Some people do it because they like having all of their digital receipts in one spot. Some people like it because they discover deals and promotions… some people like buy now, pay later.”

In other words, these BNPL services don’t see BNPL as an end; they see it as a beginning to becoming shopping marketplaces and destinations for shoppers. 

Taking on the very existence of credit

And since that future might not have any need to offer credit card payments, the credit card companies may already be sweating it.  Many of them have been promoting interest-free “flex” payment options for larger purchases on some of their cards.  And they may be looking at ways to expand their 0% APR offerings beyond introductory periods.  (Oddly enough, layaway has yet to issue a response to the BNPL movement.) 

Beyond the credit card companies’ counterpunch, BNPL could change the future of credit because they largely aren’t intertwined in the credit score world. If BNPL becomes the primary payment method, credit scores could lose some of their importance — people’s credit scores will no longer accurately reflect their financial standing, loan repayment history, or  loan worthiness for major purchases like home and car. Of course, that level of a shakeup could be years away, if it happens at all — but it’s not out of the realm of possibility.

Doing what it takes to get your loyalty

The global BNPL market size is expected to reach $20.4 billion by 2028, and Sykes expects a one- to two-year “land grab” for market share, which could incentivize a lot of chaotic, consumer-friendly changes.  Especially since large corporations like Apple and Amazon are now elbowing their way into the scrum.

Our best advice: Keep your eye on the different BNPL service for perks and incentives; as they battle for stores, they’ll also be battling for brand loyalty in these years, and that should provide a chance for you to get some nice payouts and bonuses in the process. For instance, Affirm is offering massive referral fees — you get $50 and a friend gets $50 once you refer them. Expect plenty more opportunities like that to come.