You are about to make a big purchase, and you receive an offer at checkout to pay in installments. This is known as a Buy Now, Pay Later (BNPL) arrangement. It is a type of short-term financing that allows consumers to pay for purchases over time, often without interest.

Retailers are increasingly offering these instant point-of-sale loans to attract customers who don’t have (or don’t want to use) credit cards but don’t have enough cash on hand to make the purchases they want.

How Does Buy Now Pay Later Work?

Though each company has its own terms, some procedures are common to all Buy Now Pay Later offers.

  1. You go to checkout to buy the item. 
  2. You select the Buy Now Pay Later option.
  3. Fill in the requested information.
  4. You receive a notification within seconds as to whether you qualify.
  5. You make a down payment of at least 25% of the total cost. 
  6. Pay off the rest of the amount in interest-free installments.

This arrangement benefits both sellers and buyers. The buyer gets the product with less upfront cash the seller makes a sale they might otherwise have lost, along with getting a chance at more sales. 

👍 Advantages of Buy Now Pay Later

Buy Now Pay Later exists because it is a win-win for both the merchant and the buyer. Here are some reasons to use Buy Now Pay Later.

  • Buy Now Pay Later plans are usually interest-free. 
  • You make several smaller payments instead of one big payment.
  • You can buy more expensive items that may not fit your weekly budget but which fit your bimonthly income. 
  • Qualification is easier than it would be for a credit card or interest-bearing loan. Most companies that offer Buy Now Pay Later do what is called a “soft” credit check. That means the inquiry doesn’t affect your credit score. If a company does a “hard” credit check, it will affect your score. 
  • Buy Now Pay Later increases your value as a customer for the merchant. You may get future offers regarding sales or announcements of new products.

⚠️ Payment terms are always stated in plain language. Even if you are standing at a register and there are people behind you, read the terms and conditions. 

👎 Disadvantages of Buy Now Pay Later

It is fairly easy to qualify for a Buy Now Pay Later offer, and this can tempt you to make lots of similar purchases at several stores. Keep track of your overall debt as you shop.

Note that if you do not pay the amount within the specified repayment period, then the lender may charge you interest on the total purchase amount. Basically, the agreement will be voided. You could even have to pay the total immediately, with no installments available.

Returning Buy Now Pay Later Items

Even if a merchant has a generous returns policy for BNPL purchases, you may experience a delay in getting your money back. While you are waiting, you must continue to make payments so you won’t be counted as delinquent. Otherwise, you could be charged interest and penalties. This could also hurt your credit score.

Be prepared for a complicated process. People have grown accustomed to easy refunds and returns with credit cards, but the BNPL industry has lagged behind. The process can vary according to company policies as well as those of the lender the company used to finance BNPL purchases.  

Even if the seller agrees to the return, you may have to contact the loan company the seller uses. That company will need to contact the seller to see if it is all right to return your money. 

When to Use Buy Now Pay Later

This type of purchase works best if you know you will have money coming in the very near future. Most plans of this type allow you to pay in four installments. Those payments may be due every two weeks. Make sure you read the terms of your agreement carefully.

👉 Tip: Always check the total of your installment payment mounts to make sure they add up to the actual purchase price.

Compare Types of “Pay Later” Approaches 

There are several  Buy Now Pay Later options to consider.

A Merchant Buy Now Pay Later Plan

In these loans, the customer isn’t charged interest. Customers can take the item with them immediately.


With layaway, you pay a deposit for later pickup after completing payments. The store keeps the merchandise until the total purchase price is paid.

Here is a partial list of merchandisers that offer layaway:

  • Amazon 
  • Best buy
  • Hallmark Gold Crown
  • Buckle
  • Burlington Stores
  • Big lots
  • Sears
  • Walmart 
  • Conn’s Home Plus
  • Kmart

Layaway had been fading as a way to buy goods, but it is making a comeback as merchandisers enjoy the security of having the item in their possession in case anything goes wrong.

Consumer Interest Loan

In this type of transaction, an interest rate is applied to the total purchase price. You get the item immediately, but you will pay interest during the life of the loan. Some merchants offer to finance large purchases in this way.

Pitfalls of BNPL, Layaway, and Loans

Buy Now Pay Later Plans seem like a great deal at first glance, but there can be issues.

  • Buy Now Pay Later plans do not charge interest, but you may pay a transaction fee. This fee helps the seller pay the charge their financing company levies. This is typically 2.8% of the purchase price. Also, you may not be able to return the item because it will be considered used since you took it with you. 
  • Even though Buy Now Pay Later is technically a loan, paying it off seldom helps your credit score. The deck is stacked against you: making all your payments on time may not build credit, but missing payments can hurt credit. 

💳 If you use Buy Now Pay Later instead of a credit card, you won’t get the cash back and other rewards many credit card companies offer. On the other hand, you won’t pay the high interest rates that credit cards typically charge if you carry a balance past the due date.

  • A consumer loan may have hidden fees. There can be setup fees, as well as other charges. And, of course, you get charged interest on the balance each month. This can double the cost of the item over time.
  • Layaway plans not only charges an upfront deposit, but you will also pay a restocking fee if you cancel the layaway plan. You may also forfeit payments you have already made.

For all types of payment plans, you may end up spending more than you should. It is said that credit separates the pain of paying from the pleasure of buying. This makes it easy to incur more debt than you realize you are taking on. Make sure you need the item immediately. Otherwise, you will save money by waiting until you have cash in hand to pay the full purchase price. 

However, if you discipline yourself and use Buy Now Pay Later wisely, you can benefit from not having to check your bank balance for every purchase. That means no more overdraft fees.

As with most forms of credit, Buy Now Pay Later plans can be either a blessing or a curse. The difference is in the way you use them. If you handle your Buy Now Pay Later options responsibly, they can help you distribute the impact of a major purchase. Use them irresponsibly and you can bury yourself in debt very quickly!

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