How Does Buy Now Pay Later Works & Is It a Good Idea?

BNPL (buy now, pay later) applications are the hottest new way to, yeah, buy now pay later. They offer you the option of paying for your purchase in monthly instalments, always “interest-free.” According to a new BNPL survey conducted by The Ascent, more than one-third of U.S. customers have used a BNPL service, a figure that has grown dramatically in recent years.

Unfortunately, only about one-fifth of users who use these applications grasp how they function, according to the report. Unexpected payments and credit loss may result from a lack of understanding. All you need to talk on how buy now pay later applications operate is right here.

What are BNPL (buy now pay later) applications and how do they work?

Buy now, pay later applications let you make online purchases and pay for them in weekly, biweekly, or monthly increments. These applications, including credit cards, which bill interest, but they may also deliver “interest-free” periods. You will stop paying interest entirely if you pay off the balance before the term expires. BNPL interest rates are usually very high on a daily basis.

Most online stores have them on their checkout pages. A traditional BNPL interest-free deal would divide a transaction into four equivalent instalments, the first of which is charged at checkout and the remaining three every two weeks.

For example, if you’re buying anything for $200, you might see a BNPL payment option that allows you to pay in four $50 interest-free instalments. You’ll pay $50 today and get your piece, then $50 every two weeks for the next six weeks. If you don’t make your contributions on time or don’t pay off your debt until the interest-free period expires, you will be charged significant late fees and interest.

Is it true that buying now and paying later has an effect on my credit score?

BNPL is unlikely to increase your credit, but it can lessen it. The majority of BNPL applications do not perform a hard pull on your credit sheet, and many do not report on-time transfers to the credit bureaus. As a result, depending on the app, making all of your payments on time would have little effect on your credit score or even appear on your credit report.

Few BNPL applications, however, do announce late payments. In addition, if you miss a payment, most BNPL applications will cancel your account and insist that the outstanding balance be charged in full right away. If you don’t pay, your loan will be submitted to collections, which will negatively affect your credit score.

For others, the lack of opportunities to create credit may be a drawback, but others, especially those with bad credit, may benefit from the BNPL apps’ more lenient credit acceptance.

Is it a smart idea to pay for online orders using a BNPL app?

BNPL services, on the whole, deliver decent discounts — as long as you pay your balance off on time. When using BNPL software, there are a few things to keep in mind. Overall, they’ve created a versatile and easy way to pay for your online purchases.

Benefits of BNPL Apps

There will be no hard credit check: When you open an account with BNPL, you won’t be subjected to a hard credit search in most cases, but not all. It’s a smart idea to keep the amount of new requests on your credit report to a minimum, since too many will hurt your credit score. Any BNPL applications do a soft pull on your account (which has no effect on your score) as part of the acceptance process, but they’re mostly easier to get than a credit card.

Interest-free periods: BNPL will be a decent deal if you take advantage of an interest-free bonus to pay off the debt on time. You’ll be able to get the order straight away and pay for it over time without incurring any interest charges.

Effortless and convenient: The benefits of using BNPL applications are undeniable. They don’t necessitate any more applications or wait times. Many online stores have payment mechanisms built in, so it’s just as simple as entering your credit card details.

Disadvantages of BNPL services:

Late fees: You’ll almost certainly have to pay late fees if you fail to make a deposit or don’t have enough funds in your associated bank account. Many of these fees are fair flat-rate payments similar to those charged by credit cards, but they will stack up with time, so paying on time is the only way to minimise additional costs. Deferred interest ads on BNPL applications can also be avoided. If you don’t pay off the balance in full until the discount time expires, you’ll be charged interest from the initial sales date, which can be very costly.

High interest rates: BNPL apps sometimes have interest-free loans, but only for a short period. Any BNPL applications will start charging interest if you do not make the purchases according to the arrangement or if you are unable to pay off the order in full before the interest-free time expires. BNPL apps’ daily interest rates can be much higher than credit card interest rates.

Small credit limits: Some BNPL applications are designed for sales of a few hundred dollars, while others can reach several thousand dollars. If you have solid credit and a steady pay check, you’ll be able to get a credit card with a higher credit cap. However, putting large transactions on a credit card isn’t a good option in the first place, since you’ll pay high interest rates and end up in debt for years.

Little to no credit creation: You won’t be able to create credit for BNPL applications and you won’t be able to get credit for making on-time payments. Since your charges aren’t posted to the credit bureaus in most situations, you won’t be able to develop a good credit background on these applications as you would for a credit card.

Using the BNPL alternative to its full potential

Aside from the ease and versatility that BNPL provides, this credit option will also help you create a better credit record if you keep your end of the bargain with the provider or retailer and pay your bills on time. Here are three steps to help you make responsible use of the BNPL option:

Keep a close eye on your BNPL purchases. Yes, you can conduct several BNPL transactions with various merchants or lenders, but keep track of the total amount invested. You know your financial situation, loan commitments, and other obligations, but be cautious and keep track of your BNPL transactions. Even if you stay under your permitted credit cap, overspending will make it impossible to repay your debts responsibly.

Choose the repayment period wisely. The repayment terms and tenures provided by buy now pay later services are extremely flexible. Depending on the tenure you choose, there could be additional fees. If you have an interest-free loan term, you will not be required to pay anything. You will be paid late fees if you do not make the payments by the due date. If you’re certain you’ll be able to pay off the whole balance as soon as the next pay check arrives. If you have made a large investment, though, you may want to try paying it off in instalments.

Do not miss your payments. Because a missed payment will result in a late fee which could have an effect on your credit profile, it is vital to exercise financial restraint when making your repayments, just as it is for all credit opportunities. To reap the rewards of a faithful customer, make sure you pay the BNPL sums due by the agreed-upon deadline. You may also set calendar notifications and warnings to keep track of your due dates and make proper payments before interest accrues.


To summarise, while BNPL is an attractive proposition for customers, it is critical not to get carried away with it. Maintain financial and credit discipline to make the most of this credit option. Make wise investments and use your money wisely.

Author Bio:

Allison Janney is a Sales & Marketing Manager at ChargeAfter. She would like to share content on Finance Industry like Point of Sales financing, Buy now Pay later, consumer financing & Ecommerce financing for valuable reader.