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Buy Now Pay Later (BNPL) plans have surged in popularity over the past few years. If you've ever shopped online, you’ll have seen companies offering you the opportunity to buy stuff now and pay for it later. Kind of like a credit card... but, with no fees! How do they work, what are the benefits and drawbacks and why are they becoming so much more popular? Is there a catch? BNPL services allow consumers to pay for a purchase over time in installments, without interest or fees. They’re commonly known as ‘pay in four’ because typically the payments are split into four payments over six weeks. How do they work? To qualify, typically you need to be at least 18 years old, have a mobile phone number and have a debit or credit card or bank account to make payments, which are usually deducted automatically. Sounds too good to be true, right? What are the benefits? Minimal credit checks: Some companies perform a soft credit check, while others skip it entirely (though larger purchases may trigger a hard credit check). Quick approval: The approval process is usually fast and straightforward. Seamless checkout process: BNPL can make your shopping experience smoother.
What are the drawbacks? Only seeing a small upfront amount you must pay could lead to the temptation to spend money on something you can’t afford. Impact on Your Credit Score: Missed payments can affect your credit score, be sent to collections, or leave a negative mark on your credit report. Late Fees: Some lenders charge late fees if you don’t pay on time, others simply cut consumers off from future purchases until they pay. Fees can vary: Late fees can be a fixed dollar amount or percentage of the missed payment. Most plans don’t charge interest, but some do (disclosed upfront). Some companies charge (small) processing fees. You may be subject to returned payment fees if your payment fails. Returns can be complicated.
Why are they becoming so popular? High inflation rates are driving up prices and people have a harder time paying for things upfront. Interest rates are also at recent highs, making credit card interest more expensive, and BNPL services more affordable. They’re very convenient and well-marketed. The market is flooded with these services, each company providing their own twist: Affirm, Afterpay, Amazon, Apple Pay Later, Four, Klarna, PayPal ‘Pay in 4’, Perpay, Sezzle, SplitIt, Zebit and Zip Pay.
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