With prices rising everywhere, Buy Now Pay Later (BNPL) options are better than ever.
But are they a good option for you?
Surprisingly, the answer is yes.
Of course, that “yes” comes with a few stipulations, which I’ll get to, but overall I’ve found that these companies can help make big purchases easier, especially for those whose credit isn’t. not perfect.
As long as you shop within your means and don’t go on a mindless shopping spree, these companies can really be a boon.
To help you navigate the world of Buy Now Pay Later and get the most out of your money, read on to understand how it works, what to look for, and a comparison of the top BNPL companies.
I’ll also add some useful tips to help you maximize your buying options.
How it works
Buy Now Pay Later is simple and works as a hybrid of layaway and short-term lending.
You can make a large purchase and split it into multiple payments. Payments are typically 2 weeks apart, with the first payment due at time of purchase.
Unlike layaway, you get the item as soon as you make that first payment.
Payment is made by connecting a debit, credit or bank account to the business and payments are debited automatically.
To use the service, you download Klarna, Zip or one of the other BNPL apps.
Once you sign up and get approved, you search their site for the store you want and when you checkout, you pay through the app.
The BNPL app creates a unique virtual “card” (with an expiration date and security code) for the purchase amount, and you pay online or in-store with it.
For example, if you are using the Klarna app and want to pay for purchases at Walmart, you can access the app and create a card for the amount you need. Then you can enter the virtual card in the Walmart app and pay using Walmart pay.
Additionally, if a store has a sign saying it accepts Zip or Klarna, you can access the app, enter your purchase amount, and present the virtual card to the cashier.
Online, just go to Target.com, Walmart.com, OldNavy.com, etc., and when you checkout, you’ll have the option to pay with Affirm, Klarna, etc.
Advantages and disadvantages
Now that you have an overview of how it works, let’s take a look at how these companies can help or hurt you.
- With most of these BNPL companies, payments are interest free as long as you pay on time. So if you need new clothes for work or a new washing machine, you can do it and breathe a little easier.
*fun fact: With Klarna, if you have a payment coming up, you can extend it for a week, as long as you haven’t extended a payment for this purchase before. And they do it without penalty.
- You don’t need good credit, or no credit. One of the great advantages of these loans is that you are approved even with bad credit or none. If they do a credit check, it’s a soft check, so it doesn’t hurt your score. It’s next to impossible with a traditional loan to get approved, let alone get approved without interest. It gives the working class a fighting chance.
- Some BNPL companies like Affirm, PayPal and Klarna offer long-term loan options, between 3 and 48 months; and some of these options have 0% interest! For a larger purchase, like furniture for a new place, this can be an easy way to pay it off and avoid interest.
- BNPL companies can help you not only with the items you want, but also with the ones you need, like a computer for work or even groceries. I know several single parents who have struggled during the pandemic and thanks to Klarna they have been able to put supplies in their fridge.
*fun fact: After the last 2 years, we all want to have fun, even if we can’t afford it at the moment. My colleague booked a vacation that she otherwise couldn’t afford to take her kids with Zip (Quadpay). This allowed them to spend a few days in the sun without needing a large payment for the hotel stay.
- You can overspend. Since the payments are split into smaller amounts, you can accept more payments than you can afford. An example: you are short of money and buy an iPad for $300 (4 payments of $75) with Klarna. Then you make a $500 purchase for a new couch (4 installments of $125) and a $200 purchase for clothes (4 installments of $50). Now in 2 weeks you have to pay $75 + $125 + $50 which equals $250. If you couldn’t afford the original $300 for the iPad, those 3 payments coming in at once could make things difficult.
- This could affect your credit; although you don’t need good credit, most of these companies will run a smooth credit check. This will not affect your credit score, but if you are approved and miss payments, it MAY affect it. Missed payments can be reported, causing your score to drop.
- Hidden Charges/Loss of Credit: If you are late, you may be charged late fees or even interest in some cases. Afterpay and Klarna will give you a 7-day grace period before assessing late fees, while Affirm and PayPal will not charge late fees. However, Klarna will suspend your use if you are late, or may reduce the amount you can borrow in the future.
- The amount you are approved for depends in part on your credit score and payment history. I say partly because there doesn’t seem to be a one size fits all business. When I signed up with Klarna, I was approved for $1,500; However, Quadpay (now called Zip) initially approved me for just $425.
- You could pay interest. Some, like Affirm, may charge up to 30%, and while they’ll tell you before you commit, if that’s your only option, it might not be as good as you think.
Buy now, pay later
* Best overall due to payment flexibility and purchasing power.
Klarna can be used just about anywhere, which is why it’s my top pick. You can use it for clothing, electronics, appliances, hotels, Broadway tickets, even your phone bill!!! I tested it for this article and paid my phone bill with a Klarna card.
When you access the app, you can search for any site and if it does not show up, the Klarna app will allow you to search for it on Google. Once you view it, the “Pay with Klarna” will appear at the bottom and you can use it.
Payments: With Klarna, you have several choices:
You can split the payments into 4 interest-free installments every 2 weeks.
You split it into 6 payments, which gives you smaller payments over a longer period (6 payments every 2 weeks), but this option has interest.
There is a Pay in 30, where you have 30 days to pay, from the dispatch of the order. This gives a little flexibility, especially for clothing purchases. You can order them, try them on and return them if they don’t fit without making a payment.
Finally, there is a long-term financing option, from 6 to 36 months. For this, you must apply as you would with a credit card. It has an interest rate of 19.99%, but there’s no annual fee and you don’t pay additional interest if you don’t pay your balance at the end of the term.
Zip is another good BNPL choice and works like Klarna.
It can also be used on just about any site through the Google search feature, making it a top pick.
The only downside is that there is no flexibility in payments. If you miss one, you will be charged $10 (up to 3 times per purchase) and buying power is temporarily halted.
Payments: Zip only offers a 4-payment, interest-free installment plan.
*Simple process but limited drill-through.
The AfterPay website is easy to use and there is no credit check which would be great except they are not used in many retail stores.
They’re available at some clothing, beauty, and fitness stores, but many recognizable names are missing, like Target and Walmart.
Payment: AfterPay offers a payment in 4 installments, interest-free payment plan.
Sometimes the first installment will be higher than the other 3, but AfterPay will let you know before your purchase.
Like Klarna, you can extend your payment due date, provided this is done with more than 24 hours’ notice of the existing payment date. For some purchases, you can shift the 2nd or 3rd payment once per order.
*New AfterPay users cannot move payments for the first 42 days. Additionally, you will be charged late fees if you miss a payment, usually after 10 days, and purchasing power will be suspended.
* Ideal for those with good credit and for large purchases.
With Affirm, you can either go to their site or apply for checkout on a website where Affirm is an option. Affirm does a credit check and its approval is more like that of a traditional loan.
If you are approved, they will tell you the amount, interest, ranging from 0-30% APR, and your payment terms, which can range from 3 to 48 months.
Payments: Affirm doesn’t hit you with late, annual, or prepayment fees, but there is interest.
As you can see, there are good points and bad points in all of these companies, but in the end, if you use your head, they can be viable options.
Have you used any of these services?
If so, tell me about your experience below.