Buy now, pay later services allow you to split a purchase into a series of equal smaller payments. They allow you to get your item now, but spread the cost of the item out.
Making purchases with “buy now, pay later” apps and services
These services are becoming the norm in the realm of payment options when you shop online. They allow you to get the merchandise at the time of purchase but allow you to pay for it later – as the name suggests.
This type of repayment plan is not new, however, it has very recently risen to popularity. In fact, most online shopping sites have this payment method as an option on their website.
So, what is “buy now, pay later?”
Buy now, pay later (BNPL) is essentially a form of credit based on the installment loan model. This financing option allows you to divide the purchases into multiple different payments that are billed directly to your credit card.
These plans are most often seen in online marketplaces, but may also be available in regular retail stores. In addition, some BNPL services will come with additional fees and may charge interest. However, not all buy now, pay later programs will include these terms and conditions.
How it works
If you have shopped online recently, you may have noticed this option during the checkout process. It will give you the option to break up your total purchase into smaller payments.
After selecting the BNPL option, often through a third-party service, you must fill out a short application. The application will require the following:
- Name
- Address
- Phone number
- Date of birth
You will then provide your payment methods, such as a credit card or debit card connected to your bank account. In addition, the provider may conduct a soft credit check. These soft pulls will not be reported on your credit report and will not affect your credit score.
Approval will be instantly available upon submitting your application. The criteria vary, but even if you have bad credit or no credit at all, you can still qualify.
The payment plan
A typical BNPL service will utilize the “Pay in 4” model. This model will divide your payment into four installments, each due two weeks apart. The first payment is due at checkout.
Common “buy now, pay later” sites and apps
- Afterpay
Afterpay is one of the most common and largest BNPL services. They utilize the Pay in 4 model and will not charge you additional fees as long as you are making your payments on time. They have a 10-day grace period before a fee will be charged to your account.
- Klarna
Klarna has been rising in popularity lately and uses the same Pay in 4 model. They do not charge interest, but if you miss two payments you will be charged a late fee. These fees will be no more than $7.
- PayPal
PayPal uses a similar model to Afterpay and Klarna, with the same Pay in 4 plan. In addition, PayPal does not charge interest or late fees.
When is it okay to use buy now, pay later services?
These services should only be used for necessary expenses. These plans may seem to be simple and low-cost, but they still require you to take on some debt.
Before using one of these services, look out for ones that charge no interest, as it will make it easier to pay back the loan.
In addition, some of these companies may be reporting these short-term loan services to the three major credit bureaus, meaning that a late payment may impact your credit score.
Although these providers are convenient, they should only be used if they fit into your current budget and should only be used for necessary purchase. They make it very easy to overspend, making the debt hard to pay back and leading to consequences to your credit. Luckily, Cambio can help you repair your credit at the lowest costs available online.
