What Is Buy Now, Pay Later? A Practical Guide for Shoppers

Article overview

• What it is: Buy Now, Pay Later (BNPL) lets shoppers split purchases into smaller, often interest-free installments over time instead of paying the full amount upfront, with services like Affirm, Afterpay and Klarna available across most online retailers.
• Who uses it and why: BNPL is most popular with Gen Z and Millennial shoppers (nearly 50% have used it recently) as a way to manage cash flow, avoid credit card debt and access financing without traditional credit requirements, though 25% of users have multiple active loans simultaneously.
• Key considerations: While BNPL offers predictable payments and easy approval, it carries risks like overspending, late fees, fewer consumer protections than credit cards, and potential credit score impacts starting in 2025. Therefore, it is important to treat it like any other loan and use it only for planned purchases within your budget.

If you shop online, you’ve probably noticed Buy Now, Pay Later (BNPL) show up as a payment option. Instead of paying the full price at checkout, these short-term installment plans let shoppers split the cost into smaller, often interest-free, payments over time.

BNPL isn’t just for clothes or electronics anymore. Today, you’ll see buy now, pay later websites and apps across categories—from everyday purchases to bigger-ticket items like furniture and flights. Younger adults are drawn to it as a more flexible alternative to credit cards.

BNPL can make a budget stretch further in the short term, but like any loan, it has some risks that are worth understanding before you use it.

What is Buy Now, Pay Later?

BNPL is a short-term installment loan you can choose at checkout. Instead of charging the full price to a debit or credit card, the purchase is split into equal payments over a set period, often four installments across six weeks. In many cases, there’s no interest if payments are made on time.

How does Buy Now, Pay Later work?

BNPL is offered through buy now, pay later apps and providers like Affirm, Afterpay, Klarna and PayPal. You’ll see it across most eCommerce websites, including retailers. Everyday spending categories are also starting to adopt it. You can even pay for your DoorDash burrito in installments, and your local auto shop may promote extras like BNPL tires when you’re scheduling an oil change.

Adoption has grown quickly. A 2024 TransUnion study found 79% of consumers have heard of BNPL, and 14% had active loans. Just about 45% of shoppers use BNPL for items like electronics and clothing, and 36% use it for bigger-ticket items like buy now, pay later furniture, home decor and appliances.

A few services advertise buy now, pay later with no credit check or down payment. These features can make BNPL attractive to shoppers who might not qualify for a traditional credit card. But there are trade-offs, as missed payments can result in late fees, and longer-term financing plans could carry interest.

How does Buy Now, Pay Later make money?

BNPL providers earn most of their revenue through merchant fees. Retailers typically pay 2-8% of each sale to the service, compared to 1.5-3% for credit cards. Stores accept the higher fee because BNPL can increase sales by 20-30%, improve average order values and reduce abandoned carts.

Some retailers pass on a portion of the costs to consumers through higher prices. On the customer side, providers also make money through late fees, interest on long-term financing and overdraft charges when autopay hits an account without enough funds.

Who uses Buy Now, Pay Later, and why?

BNPL is most popular with younger adults. Nearly 50% of Gen Z and millennial shoppers have used it in the last year. For many, it’s a way to cover cash flow needs. BNPL can help stretch a paycheck, manage irregular income from freelance or gig work, and avoid carrying a balance on credit cards.

For younger shoppers, the appeal goes beyond cost. BNPL often feels easier to access than traditional credit. Approvals can happen instantaneously, and payments are laid out in fixed installments. That predictability can make it seem more approachable, but it’s also easy to underestimate how many payments you’ve taken on at once.

Pros and cons of Buy Now, Pay Later

Buy Now, Pay Later has its advantages, but it also comes with risks. Here are some of the main trade-offs to keep in mind:

Pros

• Predictable installments: Purchases are divided into multiple equal payments, often interest-free if paid on time.
• Accessibility: Some services offer options like no-credit-check policies, making them appealing to shoppers who may not qualify for traditional credit.
• Convenience: BNPL is quick to set up, and approval often happens right at checkout.
• Budget flexibility: Fixed installments can help manage cash flow, allowing larger purchases to align with paychecks.

Cons

• Overspending risk: Smaller payments can make it easier to buy more than you originally planned.
• Late fees: Missed payments may add costs, and some accounts may be sent to collections.
• Credit score impact: Starting in late 2025, FICO will roll out new models that include BNPL repayment data.
• Fewer protections: Credit cards typically offer stronger safeguards against fraud and disputes.
• Marketing hooks: Offers like “buy now, pay later, no down payment” may sound appealing, but you’re still responsible for the full balance, and fees can pile up if you can’t pay.

Understanding Buy Now, Pay Later versus credit cards

BNPL and credit cards both offer shoppers more flexibility than paying up front, but they work in different ways.

BNPL can be appealing if you want short-term financing without interest, especially for planned purchases you know you can pay off quickly. Approval is fast, and you don’t need a strong credit score to qualify.

Credit cards, on the other hand, provide long-term flexibility, stronger consumer protections and the opportunity to earn rewards, such as cash back or travel points. However, unless you pay your balance in full each month, credit card interest rates are typically much higher than BNPL.

The option that makes sense for you depends on your budget, spending habits and how disciplined you are with repayment.

Using Buy Now Pay Later wisely

BNPL can fit into many budgets when used thoughtfully. The key is treating it like the loan it is. Here are some ways to make the most of it while avoiding common pitfalls.

Common guidelines

• Use it for planned purchases, not impulse buys: BNPL may make sense for a larger expense, like a new sofa, but think twice before using it for take-out or emotional purchases.
• Limit active plans: Having multiple installment plans open at once can make it harder to track your actual cash flow.
• Align with your budget: Add upcoming installments to your monthly spending plan, just as you would any other recurring bill.
• Set up autopay and reminders: This helps reduce the risk of missed payments, but make sure the linked account has enough funds to avoid overdraft fees.
• Know the total cost upfront: Double-check whether the plan adds fees or interest, especially longer-term options.

What to watch for

Some providers may charge high late fees, require mandatory autopay or promote offers with a lot of fine print.

Returns can be another potential pitfall. Check your account if you sent something back; you may need to continue making payments until the refund is cleared.

Doing some basic research before you buy can help. Find out if there’s interest on payments and when it kicks in, what happens if you miss a payment, and if the loan is reported to credit bureaus.

Using BNPL wisely means approaching it with the same care you’d give a credit card or car loan. Avoiding emotional spending, doing your research and tracking commitments can help prevent BNLP from undermining your budget.

The bottom line

Buy now, pay later can make purchases feel more manageable by breaking them into smaller payments, offering short-term flexibility for many budgets when cash flow may be tight.

Like any financial tool, it works best when you understand the trade-offs. Knowing the costs, protections and repayment terms up front can help you decide if BNPL is a good fit for your situation.