What is Buy Now Pay Later (BNPL)?

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Buy Now Pay Later (BNPL) apps are everywhere in 2021, and it’s likely that this trend will continue in the future. If you don’t know what Buy Now Pay Later (BNPL) is, the answer’s in the name: it’s a service that allows you to buy what you need and pay later.

The pandemic changed the way people do business, and services like Klarna, Afterpay, and Affirm have become incredibly popular. Today, if a business doesn’t have an ecommerce presence, they are almost entitled to fail.

Buy now pay later apps make it easy for retailers and ecommerce store owners to offer point of sale financing to their customers. There has been a dramatic revolution in the fintech sector as of late, and companies like Klarna have managed to ride the wave of increasing digitization.

If you are a regular online shopper, you might have noticed a slight increase in the number of payment methods shown on the checkout page. With many consumers losing purchasing power due to the pandemic, BNPL services are becoming more and more popular.

How Do Buy Now Pay Later (BNPL) Services Work?

The concept of “buy now pay later” is relatively similar to the older method of layaway shopping. However, with the older method, possession of the item was only granted when the shopper had made the relevant installments and completed their payments.

With third-party BNPL companies, you can take possession of the items right away, and then pay back the amount based on the interest rates agreed upon. The method is fairly simple.

Step-by-Step Guide to How Buy Now Pay Later Works

  1. Shoppers go on websites that work with BNPL apps and services. They choose the relevant financing method).
  2. They are usually redirected to another website which shows the monthly payments and the repayment plan. All financing options are listed here.
  3. If your credit score is accepted and you are deemed eligible, you can just select the appropriate payment option during checkout.
  4. You will then have to compare interest rates (some also offer interest-free options) and payment plans.
  5. Then, just confirm your purchase.
  6. Now, you will have to make payments to your BNPL service provider until the balance is cleared.

Important Factors to Consider When Using Buy Now Pay Later

Ideally, when making payments to a BNPL service provider, you should try and repay the amount within the delay period. This will make you eligible for interest-free payments, so many buy now pay later services don’t levy interest charges if the payment is made on time.

Affluent buyers, especially millennials who shop frequently, can plan accordingly and delay payments for their order value for up to several months. All of this, without incurring a cent in interest payments.

This is ideal for online shopping, especially for larger amounts. Issuers like Sezzle and Quadpay are becoming more and more popular now, primarily because of the difference in terms. Even PayPal has a BNPL service known as PayPal Credit.

There are a few lenders that may allow you to repay the amount over a longer period, but the interest rate might be higher. You obviously won’t get free installments as a result.

Now, if you are going to use buy now pay later and avoid paying the amount upfront, here are some important factors to take into account.

Avoid Missing a Payment

Ideally, you don’t ever want to deal with late payments. Because of the nature of BNPL services and how they operate, the amount could quickly increase if you are not careful.

It’s very similar to making your credit card payments. If you do not clear the amount before your delayed period ends, certain companies will charge you late fees.

They may even give you the option of paying a full settlement or levy a hefty interest rate to the outstanding amount. The late fees are generally quite high, and you might find your bank account draining much faster than you might realize.

If you can afford to pay with a debit card, that’s the best option. Most people make the common mistake of choosing these services for smaller purchases.

They often lose track of payments on a monthly basis, and end up having to worry about late fees and rising interest rates.

Missing Payments Affects Credit Scores

Essentially, buy now pay later services are offering you a type of credit. They might even conduct a soft credit check or work with credit bureaus to provide suitable options.

Needless to say, these things do impact your credit score. Simply put, you are borrowing an amount that is equivalent to the value of the item, for a specified time period.

In case you fail to pay back the amount of time or miss a payment, it’s going to reflect badly on your credit report. That’s not even the worst part: that note is likely to remain on your credit report for around six years, seriously affecting your credit score.

This could have long term implications; in case you apply for a credit card like Visa or Amex, or a mortgage later on, it’s highly likely that the way you used buy now pay later will be taken into account.

If you are simultaneously applying for lots of buy now pay later deals, you could end up in hot waters with your credit rating as well. Companies like Splitit offer fantastic deals, but applying to so many deals could lead to issues.

For instance, if your lenders conduct a comprehensive research of your credit history, they will get to see all of your buy now pay later history. Any person who sees the report will realize that you are just applying for credit, possibly out of desperation.

Hard Search vs. Soft Search

A hard search is essentially a form of credit check where a lender or company does a complete search of your credit report. Each hard search reflects on your report, so any company can see that you have applied for credit services.

If several hard searches are made, it could have a negative impact on your credit score for up to six months.

On the other hand, soft credit checks are simply a general overview. Most companies that don’t want to conduct a thorough hard search prefer soft checks to gauge if your application would be successful or not.

The difference is significant: soft credit checks are hidden from companies. As such, they do not impact your credit score in any way. Most buy now pay later companies usually conduct soft credit checks, though if the amount is high, some may opt for a hard credit check.

The Best Buy Now Pay Later Companies

There are a number of different companies that offer Buy Now Pay Later services. Several of these have become incredibly popular. In this article, we shall discuss the three most popular BNPL service providers: Klarna, Afterpay, and Affirm. In the following article, we have compared nine of the best buy now pay later apps for you to choose from.


Klarna is one of the biggest providers of point of sale (POS) loans in several countries. The company offers its buy now pay later facility at many major retailers as well, including Foot Locker, Seophra, and Macy’s.

Klarna currently offers its services in 17 countries, catering to a market of more than 90 million across borders. Their most popular payment plan is the Pay in 4, which allows approved shoppers to split their purchase amount into four equal installments.

Each of these installments must be paid after two weeks, starting with the first during checkout. So essentially, the first installment is paid at checkout, with three remaining ones being paid after every two weeks.

Every installment is free of interest, but a late fee of $7 might be incurred if the payment doesn’t go through after two attempts.

The good thing about Klarna is that they don’t penalize your account if you pay back the amount early or make a payment earlier than it’s due.

Klarna also offers a Pay in 30 plan. This one’s different because you pay nothing at checkout. Instead, you must pay the amount back within 30 days from the date of shipping.

If you are shopping online for clothes, this allows you to return items that you don’t want. Thus, you only pay for what you keep.

You can also use their “Pay Now” option. When you select this option, you are required to check out from their app instead of the checkout page. You can take advantage of promotional discounts from Klarna’s partners as a result.

Finally, there’s the conventional loan option. The terms vary, with APR starting from 0% to 29.99%. If you are looking to increase your checkout payment options, adding Klarna in the mix is a great idea!


Afterpay is another popular BNPL option that you can consider integrating into your checkout options. The company was founded in Sydney, Australia, and like Klarna, gives borrowers the option to break the amount into four installments of equal value.

It’s ideally designed for purchasing big-ticket items that most buyers can’t pay for upfront. There are certain conditions, however:

  • Your order value must be in excess of $35
  • You should have a credit or debit card
  • You must be over 18
  • You also need to make a free account on Afterpay

The CEO of Afterpay, NIck Molnar, also confirmed that the company does not perform credit checks, and a decision for approval or rejection is made within seconds.

Every new user is capped at $400-$500 for maximum spending from different retailers. The total spending limit is capped at $2,000 at any one time. However, to unlock this ceiling, borrowers must have a stellar repayment history.

The reason why Afterpay is so popular is because it doesn’t require a credit approval or check before granting credit. It’s ideal for people who have lower credit scores and feel that they won’t get approval.

And, the company doesn’t charge an upfront fee or any interest. In case you default on your payments, Afterpay will block your account – you must clear your balance and any late fees accrued before being allowed to use it again.

Afterpay is available at 3,300 retailers across the United States, and it’s catching on. There is a downside, however. Because the company doesn’t link to your credit score, you can’t use Afterpay to eventually build up your low credit scores.

While it all seems too good to be true (especially the no interest part), you should know that they charge a late fee if you miss on payments. Afterpay levies a $8 charge and freezes your account unless you clear the payments.

That’s $8 per week for every week you fail to clear your payments. Late fees are capped at 25% of total purchase value, but that’s still a lot.


Finally, there’s Affirm. This is a very popular buy now pay later service. Unlike credit card plans, Affirm adheres to a fixed schedule for payments. It doesn’t charge a fee, so customers don’t pay anything more than the amount agreed upon.

Affirm is big- more than 11,500 retailers offer Affirm’s BNPL facilities. Users can create virtual credit card numbers and use them at any store that accepts Visa. The payment schedules vary, starting from the usual Pay in 4 option all the way to 36 months.

Affirm is popular because it doesn’t charge a late fee. It also offers financing for big-ticket items, going as high as $17,500.

However, Affirm might conduct a soft credit check to verify a user’s identity. Moreover, the interest rate can go as high as 30% as well depending on your credit scores and history.

The company automatically withdraws payments from your debit card or your bank account as per the terms and conditions agreed during the purchase contract.

To use Affirm’s services, you must open an account with them. After prequalification, you will be allotted a maximum spending limit. For every transaction, Affirm must grant prior approval, which may put some people off.

Which One Is the Best?

These are not the only Buy Now Pay Later apps in the market. We created a comprehensive guide comparing and reviewing the most popular Buy Now Pay Later apps that you can review. If you are running an ecommerce store, it’s important that you carefully weigh your options and then offer a suitable BNPL service to your shoppers.

This will greatly improve sales and help you increase conversions too. It also improves brand authority dramatically.

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