Buy now pay later (BNPL) platforms are growing popular for their convenience and flexibility in purchasing items — like clothing and electronics — without paying upfront. 

According to a 2022 Consumer Financial Protection Bureau (CFPB) report, between 2019 and 2021, BNPL loans from the top five lenders in the U.S. grew by 970%, from 16.8 to 180 million. The dollar volume of BNPL transactions during this period increased by over 1092%, from $2 billion to $24.2 billion.

While the convenience of BNPL platforms is undeniable, 66% of consumers surveyed by C+R Research in 2021 consider them financially risky, with the average debt owed on BNPL purchases being $883. 

Below, we’ll explore how BNPL works, popular platforms, and the potential risks that come with it.

Buy now, pay later (BNPL) is a financing plan that allows consumers to purchase goods and items without paying upfront. Instead, customers can spread out payments in smaller, more manageable amounts to be paid back in fixed, agreed-upon interest-free monthly installments. 

BNPL platforms such as Affirm, Klarna, and Sezzle are popular among online retailers, providing an alternative payment solution for customers who cannot pay upfront. This helps them reach a wider customer base, who may struggle with budgeting or finances, increase average order value (AOV), and boost their conversions.

Using BNPL platforms is straightforward. It’s offered as an alternative payment option on many ecommerce websites’ checkout pages, along with other payment methods, such as credit and debit cards. The customer’s journey begins when they select a product from an online retailer and add it to their cart.

At the checkout page, the customer selects BNPL as their preferred payment method and is redirected to the BNPL platform’s website. Here, they must create an account and provide their personal information, such as name, address, phone number, and date of birth.

Once the customer’s information is verified, they are presented with a loan agreement that outlines the borrowing amount and payment terms. You can choose a bi-weekly or monthly installments repayment plan. 

The customer then needs to agree to the terms and conditions of the loan before being redirected back to the checkout page to complete the purchase. After making the purchase, businesses receive the entire payment upfront, except for the fees. 

Customers make their payments directly to the buy now, pay later provider on time to avoid late fees and interest charges. BNPL providers handle all repayment processing, collections, and consumer communications.

The explosive growth of buy now, pay later has led to the emergence of many different platforms, with 62% of BNPL users thinking it could replace credit cards. Popular BNPL platforms include:

Affirm

Affirm was launched in 2012 by PayPal co-founder Max Levchin and has since become one of the most popular BNPL providers in the U.S., with over 14 million active customers. It’s beneficial for in-store, online, and telesales purchases helping consumers make purchases with no hidden fees, compounding interest, or deferred payment. Affirm’s integrations include:

• Wix
• PlanetScale
• Shopify
• WooCommerce
• BigCommerce
• OpenCart
• AmeriCommerce
• Volusion
• Web Shop Manager

You can choose from four interest-free payments every two weeks or monthly installments. Affirm lets you easily manage and monitor your payments using their app or website. You can activate AutoPay to avoid missing any payments, but you won’t be charged any fees for late payments.

APR

Affirm’s APR is 0%-36% based on your creditworthiness and is subject to a soft credit check which won’t affect your credit score. The Pay in 4 option is 0% APR, but other options depend on the loan amount and repayment period.

Late Fees

Affirm doesn’t charge any late fees. Partial and late payments, however, will hurt your credit score affecting your ability to get loans in the future.

Afterpay

Afterpay is an Australian company founded in 2014 and now serving over 19 million customers globally. It allows you to shop thousands of brands and items online and in-store with no credit check required. 

You can pay in four interest-free installments or over six or 12 months, depending on your finances. The platform integrates with major ecommerce stores and online marketplaces like:

• Shopify
• Magneto
• Neto
• Big Commerce
• Estar
• StorbieFashion

Afterpay lets you browse your preferred retailers directly from their app, get personalized recommendations, and easily track your purchases. You also earn rewards for purchases you make with Afterpay.

APR

Afterpay’s APR ranges from 0%-35.99%, based on eligibility. The four installment plan is 0% APR, and the six- and 12-month plans depend on the loan amount.

Late Fees

Afterpay imposes an initial $10 late fee if you fail to process a payment on or before the due date. You will also incur an additional $7 if the payment remains defaulted seven days past the due date. 

Note, Afterpay’s late fees are not cumulative and are capped at 25% of the original purchase amount. 

Klarna 

Klarna is a Swedish-based BNPL platform founded in 2005 and now operates in 45 countries across over 500,000 merchants. It offers four financing options, including:

• Pay in 30 days
• Pay in 4
• Pay now
• Pay over time

The Pay in 4 is their most popular offering allowing customers to pay for orders over four interest-free payments paid once every two weeks. Popular stores partnered with Klarna include H&M, Shein, Abercrombie & Fitch, Nike, Instacart, Fenty Beauty, and Valentino. 

Unlike other pay-later apps, Klarna has no predefined spending limit but an automated approval decision based on the customer’s creditworthiness. Responsible credit behavior will increase your purchasing power for larger purchases over time.

APR

Klarna’s APR ranges from 0%-29.99% depending on eligibility, loan amount, and repayment period.

Late Fees

You may be charged $7 or 25% of your total purchase amount, whichever is lower, for any scheduled unpaid payment after 10 days.

Sezzle

Sezzle is an American BNPL platform founded in 2016 and now operates in 26 countries with over 48,000 merchants. This pay-later service allows consumers to split their purchases into four interest-free installments over six weeks. You can use Sezzle to shop online and in-store at major retailers like Salesforce, Amazon, Shopify, Wix, and Oracle NetSuite. 

Sezzle also offers customers the option to upgrade to a Sezzle Premium account for increased purchasing power and access to exclusive offers. A unique perk Sezzle has over other buy-later service providers is its ability to report your payment history to all three major credit bureaus helping you establish and build your credit score.

APR

Sezzle’s APR is 0%-29.99% with 3 to 48 months loan terms. APR varies based on credit qualifications, repayment period, loan amount, and lender.

Late Fees

Sezzle will send you payment reminders for missed payments and charge a late fee of $10. Failure to pay, Sezzle will deactivate your account, which will cost you $15 for reactivation, and might report it to the credit bureaus. 

Zip

Australia-based Zip Co. has offered buy now pay later services worldwide to customers, retailers, and firms since 2013. Currently, the platform enables transparent, flexible, interest-free credit for over 18,500 merchants. Its core markets are the U.S., Australia, and New Zealand. 

Zip allows customers to finance purchases online and in-store with four interest-free payments over six weeks. It’s best suited for low to mid-priced items, like apparel and electronics, as big-ticket purchases can strain your budget. There are two Zip plans:

• Zip Pay: Offers up to $1,000 for your everyday needs that you can spend immediately after approval.
• Zip Money: Offers up to $5,000 for larger purchases such as renovations, celebrations, or travel.

No minimum upfront fee is required, and you can repay weekly, fortnightly, or monthly. You can use Zip anywhere Visa is accepted and earn instant cashback when shopping at rewards partners.

APR

Zip’s APR is 0%.

Late Fees

Depending on your repayment plan, you may incur a $5, $7, 0r $10 late payment fee.

PayPal

PayPal is a household name in the world of digital payments. It offers a BNPL solution for online stores and in-store retailers on top of its payment processing services. It has the greatest selection of merchants, over 280,000 around the globe, including the likes of Amazon, eBay, and many others. It offers two BNPL services:

• Pay in 4: For purchases between $30-$1,500. Split the purchase amount into four interest-free bi-weekly payments for six weeks.
• Pay Monthly: For big ticket purchases between $199-$10,000. You can choose from six, 12, or 24 monthly payments with no hidden fees.

You can enroll for autopay in both plans to avoid late fees and keep your account in good standing. PayPal’s purchase protection feature reimburses you if the item ordered fails to arrive or doesn’t match the original description.

APR

PayPal’s APR is 0%-29.99%.

Late Fees

There are no late fees with PayPal.

The convenience, affordability, and flexibility of pay-later platforms make them ideal for people who are struggling financially or want to budget better. However, like other forms of credit, these services come with certain risks.

BNPL uses consumer psychology to affect decision making

BNPL apps present the total cost of a product using smaller, more manageable payments, making them seem affordable and easy to purchase. They also provide immediate gratification and access to goods without having to wait. This can influence a consumer’s decision-making and lead to impulse buying and overspending, resulting in debt build-up.

Late or missed payments may add fees

Defaulting on a BNPL payment can incur late fees, reactivation fees, and other charges where you may end up paying more than the original amount due. You can easily get sucked into a debt cycle if the payments become unmanageable.

Typically, products bought through BNPL are NOT credit building

Many pay-later options do not report your payments to the credit bureaus. This means even if you make timely and consistent payments, it won’t positively impact your credit score. Credit building requires consistent and reliable payment history that is reported to the credit bureaus. A credit card is a better option for increasing your credit limit when used responsibly.

BNPL loans can hurt your credit if you fail to pay

Nobody anticipates being unable to pay off their debt, but sometimes it happens due to an emergency, job loss, illness, or other unforeseen circumstances. Failure to pay can negatively affect your credit score if the platform reports it to the credit bureaus. Debt collection activity on your credit history can lower your credit score by up to 100 points and stay on your report for seven years.

Payments can be hard to track

Since BNPL services are often done through a third party, keeping track of the payments can be difficult. You may incur multiple charges or missing payments if you don’t stay on top of your repayment plan. Some pay-later options have automatic payments, while others require manual payments.

No rewards or cash back earned on purchases

Unlike credit cards, you earn no rewards or cash back when using BNPL services. You can use the cash back and rewards to offset expenses or finance future purchases. BNPL’s major selling point is its convenience, affordability, and flexibility.

Payments may continue even after the item is returned

If you return an item bought through a BNPL platform, the payments may still be due — per your agreement. Defaulting on the payments can lead to late fees, collections, and delinquencies that will knock points off your credit score. Read the fine print carefully and ensure you agree with the terms before signing up.

Why Accrue Savings is a better alternative to BNPL

Saving up for a purchase is the best way to avoid debt or overspending. It helps you budget better, prevents impulse buying, and gives you peace of mind. Accrue Savings provides an alternative option that eliminates the risks associated with BNPL while giving you more control over your finances through an automated savings plan.

Our app allows you to make monthly, weekly, or bi-weekly deposits into a savings account. This way, you are financially prepared for upcoming expenses and don’t have to rely on BNPL services. You can also earn rewards from our partners on qualifying purchases, giving you more bang for your buck. 

Register for a free account today, set your savings plan, and achieve your financial goals the right way.