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How Does Buy Now Pay Later (BNPL) Work? 


Although ‘buy now pay later’ (BNPL) isn’t a new concept and has been around for years, it was most commonly associated with paying for gifs at a later date during the expensive festive seasonThe option to purchase something, physically have it, and pay for it in smaller lump sums at a later date has become increasingly popular with the boom of online shopping.

With figures suggesting there are around 360 million BNPL users globally, and roughly 79 million in the US use buy now pay later services alone. It is therefore no surprise that many businesses are offering their clients this payment option to borrow money at the point of sale, particularly in cases of expensive items like furniture and even expensive clothing items.

But, what exactly is BNPL, how does it work and is it wise to opt for? Find out all in this guide.

What Is Buy Now Pay Later (BNPL)?

BNLP is a payment scheme that allows you to make purchases and repay them through a series of installments at a later date. It is frequently interest-free, which is why it has become so popular amongst consumers, especially those inclined to make online purchases.

Although you ‘buy’ the goods or services and receive them instantly, you will actually be repaying the money to a private company that acts as a sort of extremely low-risk money-lender. Many online stores in the US now offer this payment option, and is becoming increasingly popular as the years go by. 

How Does It Work?

Buy now pay later (BNPL) is a payment option upon checkout that is often accepted by both online and physical stores, which offers the total amount owed to be paid in smaller, equal deposits over a specific time. If you’d like to choose BNPL with an online transaction, you will need to look for the BNPL option amongst the regular payment options, such as credit and debit cards.

Once this link is clicked on, you will be directed to the provider’s website to complete the transaction. Here, you will likely be asked for some personal information including your name, date of birth, email, your social security number, alongside your credit or debit card or bank account details.

Before you find out if you’ve been approved, the company will first do a soft-credit check against you, then, the first payment will be required. You will then need to select an appropriate payment scheme, for example, this might consist of four payments over 30 days or a multitude of payments over two or more years – this varies and is dependent on the goods and services cost price and payment scheme of choice.

The most used company in the US is Klarna, with more than 150 million active consumers across 450,000 merchants, and whose longest payment plan can be chosen at 36 months.

The ‘buy now pay later’ company then reimburses the merchant the full amount and you are then expected to repay the private company by means of the agreed instalments. Often, there are no interest fees for the consumer and the merchant usually pays any necessary fees to the lender. 

What Are the Benefits of BNPL?

You, the consumer, have the ability to shop with flexibility, to buy and obtain goods and services that you want immediately, and repay it over an agreed time period in smaller, more manageable lump sums.

Furthermore, easy repayment structures make it a more user-friendly way to make purchases and manage personal finances with structure. It’s also advantageous for people who might otherwise not be accepted for a credit card or a personal loan, in turn, giving more consumers access to high-value purchases. Another consumer advantage is that a soft-credit check doesn’t affect a person’s credit score. 

Are There Any Disadvantages?

Like any other financial loan service, you should always proceed with caution before making the decision to opt for BNPL. It’s important to know your personal financial situation and ensure that you will be able to repay the loan on time and not miss any repayment dates.

By missing an instalment, you are putting yourself at risk of lowering your credit score and possibly to unwanted late fees. The easy application and approval process may encourage consumers to make more impulsive purchases without having the funds to do so. There is also an added risk of falling into a debt cycle, as there can be hefty late fees that might set you back.