The concept of Buy Now Pay Later (or BNPL) isn’t a particularly new one. For decades shoppers have been using “layaway” plans in department stores to purchase products in increments over a period of time. In the midst of the pandemic though, when shoppers were resigned to their homes and were making most of their purchases online, a growing number of online companies created new technology to allow consumers the ability to make purchases in scheduled chunks.

Simply put, buy now pay later is exactly what its nomenclature describes: the ability for a customer to fully purchase a product in the moment but only pay for a small amount of the cost upfront. BNPL is often referred to as an “installment loan” Then, using a credit or debit card and through one of the many buy now pay later apps that exists, the company will, over a period of equal increments agreed upon at checkout, deduct the amount of money still owed until the item has been fully purchased.

BNPL isn’t just for tangible products though, it can be applied to travel, health care or any other number of purchases. Buying goods through a buy now pay later program can, and often does, come with associated fees and interest rates hike if a buyer is unable to make the BNPL payment when it comes due.

Many stores offer BNPL for in-person purchases but the glut of BNPL shopping these days takes place in the realm of ecommerce.

And though BNPL isn’t a complicated process from the outset, due to its increasing popularity as a payment method, there’s increasing importance in understanding the basics of how it works, why it is so popular and what the best options are for buy now pay later sites. This short guide will walk you through of all of that.

How does buy now pay later work?

BNPL isn’t a complicated process, but there are still a number of steps when making a purchase using BNPL in the online realm. We’ll walk you through how BNPL works–in most cases–for an online shopping experience. Different companies will use different BNPL clients (which we’ll discuss later in the article) and the BNPL process can be slightly different for each.

BNPL is a payment method, so to even be given access to using it, you’ll have to be purchasing something through an online portal.

When you’ve selected the items you want to purchase and have arrived at the checkout portion of your shopping experience, you’ll be given the usual assortment of payment methods as well as the option to split your purchase into smaller amounts and pay for them over a specified period of time. This is the buy now pay later option.

When you’ve selected the buy now pay later option, you’ll be directed to an application for BNPL within the checkout API.This application will most likely ask for a selection of personal information. Including but not limited to: your name, your address, your date of birth, a current phone number and your social security number.

You’ll also be asked, most importantly, for a method of payment. This method of payment will be either a credit card or a debit card.

The BNPL client will then perform either a soft or hard credit check to determine if you’re financially viable enough to use buy now pay later. Your credit will be quickly assessed and you’ll then either be approved or denied depending on it.

Your BNPL provider will then offer you a payment plan. These will certainly vary between providers, but for the most part, buy now pay later plans come in four payment increments–”pay-in-four”-where a buyer pays for their purchase over the course of four payments, each two weeks apart, with the initial payment due at the point of purchase.

An example: if your payment is $400, you’ll pay $100 at the point of the purchase and then $100 dollars every two weeks for the next six weeks.
Over the course of the next six weeks (or whatever number of weeks/payments you agree upon) the BNPL payment provider will charge either your credit card or your debit card (depending on what you choose as your payment method).

Remember: a BNPL payment plan can come with late fees–typically anywhere from $5 to $10–and interest rates.

Why is BNPL so popular?

BNPL is a massively popular payment method that is only increasing in popularity as more and more people use it. By 2024 the usage of BNPL is expected to increase by nearly 40%. Recent studies have shown that ⅓ of consumers use BNPL, with 62% having had used buy now pay later five times or more. The question is: why is BNPL so popular

1. Simplicity on both sides

BNPL is an exceptionally easy way for consumers to buy products and for vendors to get paid. The ease of using buy now pay later ensures high conversion rates, high average order values and increase in purchase frequency when customers use BNPL because of the simplicity of the process. BNPL is, for all intents and purposes, a drop-dead easy way for customers to quickly gain credit to purchase items they’re interested in.

2. A convenient credit alternative

People use credit cards. All the time. But there are moments in every consumers spending behavior where a credit or debit card is not the payment option they’d like to use to access credit. Be it a dislike of entering a 16-digit number into yet another eCommerce payment portal, a lack of their credit card, or just a general trend away from credit card usage–BNPL offers an easy method of accessing credit.

3. A younger generation’s method of payment

After the recent string of financial crises in the United States, and around the globe, younger generations of buyers are leaning away from using credit cards as their preferred form of payment. The fear of overextending credit and permanently damaging credit scores is a strong one in the coming generations and buy now pay later offers this younger generation a means of buying things outside of their financial means on credit.

4. Buy what you want when you need it

The entire point of buy now pay later is the ability to purchase an item that at full price is unaffordable. By using BNPL you are able to purchase an item outside of your financial means upfront for a smaller amount of money and then pay it off in scheduled increments when you, hopefully, have the money on hand. This allows small businesses, or eager consumers, the opportunity to fill out inventory or buy an item that might only be on the market for a limited time, regardless of their cash flow.

5. There’s no need for credit history

Because BNPL isn’t dependent on your credit score, many people are given access to an amount of credit that they aren’t typically going to be allowed. This allows an equality of spending for a greater number of people.

What are the best buy now pay later sites?

Affirm

Available Merchants: Adidas, Best Buy, Delta Vacations, Expedia hotels and vacation packages, Nectar Sleep, Neiman Marcus, Nike, Peloton and many, many more.
APR: 0 - 30%
Terms: 4 installments due every two weeks w/ monthly payment plans extending from 3 - 60 months
Loan Amounts: 0 - $17,500
Return Policy: money refunds back to the original payment method
Fees: No fees
Pros: No fees, zero-interest loans and some of their loans include credit reporting.
Cons: Monthly plans sometimes charge interest, no rescheduling options, no phone number for customer service

Afterpay

Available Merchants: Kmart, Mimco, Target, Jetstar, SHEIN, etc.
APR: 0%
Terms: 4 installments, due every two weeks
Loan Amounts: depends on varying factors
Return Policy: dependent on the individual merchants policies
Fees: $8 late fee
Pros: No-interest financing, no prepayment fee charged, applicants with little to no credit history are often times accepted
Cons: Late fees, on-time payments are not reported to credit bureaus, not all retailers use Afterpay

Klarna

Available Merchants: over 400,000 different merchants use Klarna
APR: 0% - 29.99%
Terms: 4 installments, due every 2 weeks.
Loan Amounts: up to $1000 for “pay in four”; up to $10,000 for financed purchases
Return Policy: dependent on the individual merchants policies
Fees: $7 late fees
Pros: no-interest financing options, no prepayment fees, used by a lot of different retailers
Cons: only offers small loan amounts, late fees, doesn’t report on-time payments to credit card bureaus

PayPal

Available Merchants: Best Buy, Walmart, Bed Bath & Beyond, Dell, Gamestop, etc.
APR: 0%
Terms: 4 installments, due every 2 weeks.
Loan Amounts: $30 - $1500
Return Policy: 150 days to request refund
Fees: no fees
Pros: no fees, no hard credit check, offers purchase protection
Cons: only available for online shopping, may not report on-time payments to credit card bureaus

BNPL Alternative – Plastiq

Another alternative to BNPL is using Plastiq to pay virtually any of your business expenses with a credit card–even if they aren’t accepted. With this business payment platform, you can pay your vendors by credit card or access instant short-term financing and unlock your working capital. Plastiq gives you the ability to pay for what you need when you need it while still keeping cash on hand.

Pay for inventory, advertising, leases, or just about anything else upfront while extending the due date on when you actually have to fund the payment. Global payments, online bill pay, complete control over your cash flow–paying with Plastiq is a better way to get paid.