Buy now, pay later (BNPL) is an increasingly popular spending trend among both consumers and retailers, offering a compelling alternative to traditional payment methods like cash and credit cards. This comprehensive guide will get you up to speed on this trending form of short-term financing.
UNDERSTANDING BNPL
Through BNPL, consumers can make purchases today and pay for them later, usually without accruing interest. This form of point of sale financing, primarily targeting online shoppers, allows consumers to pay in installments rather than in full upfront.
BNPL’s financing solution may be attractive to consumers, particularly to the younger generation without qualifying credit scores. However, it is important to keep potential drawbacks in mind.
PROS OF BNPL
1. Installment plans make expensive items more affordable
2. No hard credit pull, making it easier to qualify
3. Simple, transparent process for online shoppers
4. Allows better cash flow management
CONS OF BNPL
1. Varying terms for each agreement that require careful consideration
2. Possible fixed fees added to monthly payments
3. On-time payments do not build credit score
4. May promote overspending
CATEGORIES OF BNPL LOANS
BNPL loans mainly come in two forms:
1. No-interest loans, where the merchant pays a fee to the lender in place of customer-incurred interest
2. Loans with interest rates akin to credit cards.
TOP 5 BNPL PROVIDERS
1. AFFIRM: Affirm, partnering with numerous major brands, offers 0% interest short-term or up to 12-month loans with 10-30% APR, without hidden extra charges.
2. AFTERPAY: Afterpay provides short-term installment plans via its app—four payments over six weeks—and sets a credit limit to prevent overspending.
3. KLARNA: ‘Klarna Pay in 30 days’ feature allows customers to pay within 30 days with no added charges, with options for early payoff or due date extensions.
4. PAYPAL CREDIT: Formerly known as Bill Me Later, PayPal Credit provides installment plans on purchases over $99, with no interest if paid fully within six months.
5. ZIP: ZIP allows four-installment plans over six weeks, with no charges if paid in full on time.
CONCLUSION
Though BNPL may be a viable alternative to conventional spending means, particularly for larger purchases, be careful about late fees or interest incurred. Make sure you understand the fee structure before signing on. Also, actively manage your spending by budgeting both essential and non-essential purchases intelligently.
