Key Takeaways:
- If a merchant offers buy now, pay later (BNPL) loans as a payment option, you can apply for the loan at the time of checkout.
- Depending on your purchase, there may be multiple loan options to choose from.
- If you choose a “pay-in-four” installment payment plan, typically you’ll make the first payment immediately, then the following three payments will typically be made every two weeks.
- Be aware of due dates and any penalties and fees for missed payments.
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What is buy now, pay later?
A buy now, pay later (BNPL) loan is a type of installment loan offered at the point of sale for qualifying purchases, often online. You can be quickly approved for BNPL loans at the time of checkout. BNPL loans are broken up into equal installments you pay on a regular schedule.
Paying with BNPL loans
If available, BNPL loans are presented as an option at the time of checkout. Applying and paying for a purchase with a BNPL loan typically requires a few steps to confirm your identity, the type of plan you want and how you will pay:
- At the time of checkout: Look for the BNPL loan option on the retailer’s payment page.
- Apply with the BNPL loan provider: You will need to fill out a short application with the BNPL provider.
- Credit check: The BNPL provider may perform a soft credit check to verify your identity and evaluate your creditworthiness.
- Select a payment plan: Options may include short-term, bi-weekly loans that are interest-free, or longer-term loans for larger purchases that include interest.
- Choose your payment method: You will need to provide a debit card or bank account to the BNPL provider so you can make your loan payments; credit cards may not be accepted.
- Make your payments: You will make payments on a regular schedule with the first payment being made at the time of checkout.
Pro Tip:
Be sure to carefully read and understand the terms of the BNPL loan prior to applying. Even if you have used a BNPL loan before, providers may have different terms and fees. You want to be certain that the plan you choose works best for your budget.
More on the buy now, pay later credit check
As stated above, the BNPL provider may perform a credit check before approving you for a loan. In other words, they want to be sure of your ability to make the payments on time. This credit check is typically a soft inquiry, which does not impact your credit score. During the application process, you will be required to provide the type of payment you will be using to pay off your BNPL loan.
Choosing the right payment
If you are approved for a BNPL loan, you can choose the payment plan you prefer. Some BNPL providers offer multiple plans. There are long-term loans, often offered for larger purchases, which may include interest in addition to the principal amount you borrowed. For smaller purchases, many BNPL providers offer short-term plans with four equal monthly payments. The short-term plans are usually interest-free. For a purchase to qualify for a BNPL loan, there may be a minimum purchase amount.
If you choose a short-term plan, sometimes referred to as “pay-in-four,” one of the payments is required at the time of checkout. The remaining three payments are made every two weeks, for a total loan length of six weeks.
BNPL loans and credit cards
BNPL loans are a type of credit, but they work differently than credit cards. Credit cards have a revolving line of credit, and you can make purchases up to the amount of the credit limit the bank has established for your account. With credit cards, you’re required to make minimum payments each month, which can include interest and the unpaid balance. BNPL loans are installment loans, which are loans broken up into fixed, equal payments. Some installment loans include interest, though many BNPL loans are interest free.
Your credit card issuer may also offer payment plans similar to BNPL loans for qualifying purchases. Often, these plans split a purchase into equal monthly payments. These payment plans may require an additional fee to participate. You may be notified by your bank about purchases that qualify for these plans, or you can reach out to them directly with any questions.
How BNPL payments work
BNPL providers may have different options for paying back your loans. Often, you’ll be asked to provide a debit card number or link your bank account directly. Credit cards may not be accepted.
Check your account online or your BNPL provider app to see your payment schedule and options. Be sure to note any penalties for late payments. You may want to schedule reminders of your payment due dates on a calendar. Many BNPL providers offer automatic payments, which can ensure you don’t miss a payment. You will want to be certain you have enough funds on the payment due date, so you can avoid any overdraft fees associated with your bank account or debt card.
Should you use BNPL loans?
Whether or not to use BNPL loans depends on your own finances. For some, it can be a convenient way to split a needed purchase into manageable payments. However, you need to be aware of overspending. Like other forms of credit, you may be charged late fees for missed payments. If you don’t have one already, creating a budget may help you manage your money more efficiently.
Pro Tip:
Applying for a BNPL loan typically requires a soft inquiry, so there is no impact to your credit score when applying. However, failing to pay back your BNPL loan could result in the remaining balance being sent to collections, which can have a negative impact on your credit score. As with all types of loans, make sure you’re able to pay back the balance in the agreed upon timeline to avoid any potential negative impact to your credit.
Here are some questions to ask before applying for a BNPL loan:
- Is this purchase necessary?
- Can I afford the payments?
- Do I understand the loan terms and repayment schedule?
As with all financial products, practice healthy habits to help keep things manageable. Only taking on debt when necessary can help you maintain a healthy credit history. You can learn more about how BNPL loans can impact your credit health in our blog, Buy Now, Pay Later Loans and Your Credit.
