In recent years, the financial landscape has witnessed a significant transformation with the advent of innovative payment solutions. One such phenomenon that has taken the consumer market by storm is “Buy Now Pay Later Guide” (BNPL) services. Also referred to as “point-of-sale loans,” these short-term financing options have become increasingly popular, offering consumers a flexible and convenient way to make purchases in instalments.
The BNPL Landscape:
The BNPL market is thriving, with prominent players such as Affirm, Sezzle, and PayPal paving the way for a revolution in consumer spending. According to a 2021 survey by Credit Karma, 42% of American consumers have embraced BNPL, highlighting the widespread adoption of this payment method.
The future of ”Buy Now, Pay Later” seems even more promising, as a 2022 Juniper Research report predicts a global user base exceeding 900 million by 2027, reflecting a remarkable 157% increase from the 360 million users reported in 2022. The report attributes this anticipated growth to the demand for low-cost credit solutions driven by an expected economic downturn.
Contrary to expectations, as of November 2023, the U.S. has not experienced the predicted economic downturn. Juniper Research interestingly points out that the largest market for BNPL is likely to be India. This deviation from the anticipated trend is attributed to the increasing usage of eCommerce and a growing interest in international goods available through online retailers.
|No late fee (terms apply)
|No late fee (terms apply)
|$4.99 or $12.99 (depends on subscription)
|$2,500, except for first-timers, whose limit may be less.
|$1,500 for Pay in 4 and $10,000 for Pay Monthly.
|Because Cushion provides a virtual credit card, the limit is the balance in your bank account.
How does BNPL work?
Buy Now Pay Later is a contemporary payment model gaining popularity for its convenience. When a shopper decides to use BNPL, they enter an agreement with a retailer or online app to buy goods or services. The payment is then structured over a set schedule, ranging from four equal instalments over a short period, often six weeks, to extended plans of up to four years for substantial purchases.
During the checkout process, shoppers complete an application on the screen, providing personal details such as name, address, email, date of birth, and Social Security number. Following this, the BNPL vendor may conduct a soft credit check, a non-intrusive assessment that doesn’t affect the credit score. Within minutes, the application is either approved or denied, allowing for a quick decision-making process.
What sets BNPL apart is that after paying the initial instalment, shoppers receive the purchased goods or services immediately. This distinguishes BNPL from traditional layaway plans, where possession is granted only after the full payment is made. As BNPL continues to gain traction globally, understanding its straightforward yet efficient process is crucial for those looking to leverage this flexible payment solution.
BNPL: Pros and Cons
Pros of Buy Now Pay Later (BNPL):
- Flexibility in Payments: BNPL offers consumers the flexibility to spread the cost of purchases over time, making it more manageable for those with varying cash flows.
- Immediate Access to Goods: Shoppers can enjoy their purchases immediately after the first instalment, providing more instant gratification than traditional layaway plans.
- No Interest (Often): Many BNPL plans come with zero or low interest rates if payments are made within the agreed-upon timeframe, offering a cost-effective alternative to credit cards.
- Convenient Application Process: The application process is typically quick and straightforward, often completed online during checkout.
Cons of Buy Now Pay Later (BNPL):
- Potential for Overspending: The ease of BNPL may encourage some individuals to overspend, especially if they are not diligent in managing their budget and repayment obligations.
- Late Fees and Interest Charges: Failure to adhere to the payment schedule can result in late fees and interest charges, potentially offsetting the initial benefits of using BNPL.
- Impact on Credit Score: While the initial credit check is a soft inquiry, missed payments or defaults can negatively impact the credit score, affecting future borrowing opportunities.
- Limited Merchant Acceptance: Not all merchants or retailers offer BNPL services, limiting its availability for certain purchases.
Buy Now Pay Later (BNPL) offers consumers the advantage of flexible payment options, allowing them to make purchases and pay in instalments over a specified period. This flexibility is particularly beneficial for individuals with varying cash flows, providing immediate access to desired goods or services without the need for a substantial upfront payment. Additionally, many BNPL plans come with low or no-interest options for timely repayments, making it a cost-effective alternative to traditional credit arrangements. The convenience of a straightforward application process and the ability to enjoy purchases promptly contribute to the growing appeal of BNPL in today’s consumer landscape.
BNPL plans to operate as loans, introducing a debt obligation each time a consumer opts for this payment method. For those diligent in meeting payment schedules, the inherent loan structure poses minimal risk. However, a Credit Karma survey revealed that 38% of U.S. users had missed at least one BNPL payment, with a staggering 72% experiencing a subsequent decrease in their credit scores.
Interestingly, despite being a form of credit, BNPL plans typically don’t directly engage with credit agencies, as noted by the Consumer Financial Protection Bureau (CFPB). Paradoxically, timely repayment does not contribute positively to one’s credit score, while any lapses can have detrimental effects, creating a perplexing dynamic.
Compounding concerns, the CFPB highlights that consumer protections associated with credit card purchases may be absent in BNPL transactions. This deficiency includes potential challenges in seeking reimbursement for scams or faulty goods. Moreover, the CFPB warns that BNPL companies may insist on full payment for a purchase until a dispute with the merchant is resolved, emphasizing the importance of thoroughly understanding both the merchant’s return policies and the BNPL loan terms before utilizing this payment option.
Should you use BNPL?
The suitability of BNPL plans hinges on one’s financial habits and willingness to navigate associated risks. For those consistently responsible with bill payments, BNPL can serve as a tool to acquire essential items promptly, offering some flexibility in meeting financial obligations. However, a prudent approach is crucial, emphasizing the use of BNPL for necessities like a mattress or school computer rather than succumbing to impulsive buying tendencies.
One notable drawback of BNPL lies in the potential to foster a deceptive sense of available funds, encouraging overspending. The instalment structure may distort financial realities, prompting users to exceed their budgetary limits. Additionally, the convenience of BNPL apps may inadvertently complicate the return process for items that prove unsuitable.
As highlighted by Peter Smith, a senior researcher at the Center for Responsible Lending (CRA), there’s a concern that BNPL lenders may be facilitating the use of high-cost loans for everyday purchases, while obscuring the true costs and risks associated with these financial arrangements. This underscores the importance of consumers being well-informed and cautious when engaging with BNPL, ensuring a clear understanding of the potential pitfalls and exercising prudence in its utilization.
Which apps offer BNPL?
Numerous apps have embraced the “Buy Now Pay Later” (BNPL) trend, offering consumers the flexibility to make purchases across a diverse range of categories and settle payments at a later date. Whether it’s travel, furniture, electronics, fitness equipment, auto parts, or an array of other items, the convenience of BNPL services has become widely accessible. Prominent players in this arena include Affirm, Afterpay, Sezzle, and PayPal, each providing users with the option to spread the cost of their purchases over time. This expansive reach of BNPL services not only caters to diverse consumer needs but also contributes to the widespread adoption of this payment model across various industries.
PayPal, originally a mobile payment app, has expanded its services to include the increasingly popular “Buy Now Pay Later” (BNPL) model. Among its offerings is Pay in 4, where users can settle their purchases in four equal biweekly instalments. This option is ideal for goods and services valued between $30 and $1,500. Additionally, PayPal provides Pay Monthly for larger-ticket items, ranging from $199 to $10,000. Pay Monthly features payment plans spanning six, 12, and 24 months, all with $0 down. Notably, PayPal applies interest rates varying from 9.99% to 35.99% for the Pay Monthly option, providing users with flexibility and choice in managing their payments based on the value and nature of their purchases.
Alternatives to BNPL
BNPL vs. credit cards
Not all credit cards are created equal, and one advantageous type is those featuring an introductory 0% annual percentage rate (APR), often proving to be a more favourable option compared to utilizing a Buy Now Pay Later (BNPL) app. Individuals with a credit score of 670 or above typically qualify for such cards. The introductory period for a 0% APR can extend from six to 21 months, providing a more extended timeframe for interest-free payments compared to most BNPL apps.
Another notable advantage of using a credit card with a 0% introductory APR is the potential positive impact on your credit rating. Timely payments are reported to credit bureaus, contributing to the improvement of your credit score. Additionally, credit card users may enjoy perks such as sign-on bonuses, free annual memberships, rewards, and cash back. In the event of a dispute with a merchant, credit cards offer valuable protections, including the ability to suspend a charge until the matter is satisfactorily resolved. Considering these benefits, opting for a credit card with a 0% introductory APR can offer a more comprehensive and advantageous financial solution for qualified individuals.
BNPL vs. personal loans
Exploring the option of a personal loan can provide additional flexibility compared to using a Buy Now Pay Later (BNPL) service. While personal loans do come with interest charges, they often offer a more extended window for repayment than typical BNPL plans. Qualifying for a personal loan typically requires a robust credit score and timely repayment of the loan can contribute positively to your credit rating.
A personal loan allows for a structured repayment plan, and the interest rates, while applicable, may be more favourable than those associated with some BNPL services. The extended repayment period provides users with the flexibility to manage their budget over a more extended timeframe, making it a potentially advantageous choice for certain financial situations.
Ultimately, the decision between a personal loan, a credit card with an introductory 0% APR, or a BNPL service depends on individual financial goals, preferences, and creditworthiness. Each option has its own set of advantages, and careful consideration is crucial to selecting the most suitable solution for one’s specific needs.
Read the fine print before using BNPL apps
Buy Now Pay Later (BNPL) shines as a new and enticing addition to the financial sector, providing individuals with short-term loans for their desired purchases. While certain apps or retailers offer this service without charging interest or late fees, it’s crucial to note that others do, and the consequences of a late payment can be substantial. Exploring alternative options, such as opting for a credit card with a 0% introductory APR or securing a personal loan with a reasonable interest rate, may prove to be more financially prudent. These alternatives offer potential advantages and may present a more comprehensive and cost-effective approach, particularly when compared to BNPL services with associated fees and potential risks.
Frequently Asked Questions (FAQs)
How does BNPL affect your credit?
The impact of Buy Now Pay Later (BNPL) plans on your credit score is contingent on timely payments. Making payments on schedule typically does not influence your credit score, positively or negatively. However, it’s important to note that while BNPL plans generally don’t report delinquent payments directly to credit bureaus, a debt collector associated with the outstanding payment may choose to report the delinquency.
This reporting by a debt collector has the potential to lead to a decrease in your credit score, emphasizing the importance of consistent and responsible payment management when utilizing BNPL services to avoid any potential negative repercussions on your creditworthiness.
What is the easiest BNPL guaranteed approval?
Affirm stands out in the market by providing one of the easiest and most straightforward guaranteed approval processes among Buy Now Pay Later (BNPL) apps. One notable feature of Affirm is its offer of 0% interest loans, making it an attractive option for users seeking cost-effective financing solutions.
Additionally, Affirm distinguishes itself by charging no fees for its services, and notably, it does not impose a minimum credit rating requirement. This inclusive approach makes Affirm accessible to a broad range of consumers, promoting financial flexibility and convenience for those looking to make purchases without the traditional constraints associated with credit checks or minimum credit scores.
Where can I use the Cash App BNPL app?
Cash App primarily serves as a peer-to-peer payment platform developed by Square, Inc. It does not typically offer a Buy Now Pay Later (BNPL) service directly.
Afterpay, on the other hand, is a well-known BNPL service that allows users to make purchases and pay for them in instalments. Your mention of “Afterpay Shopping” is likely associated with Afterpay rather than Cash App.
Afterpay partners with various merchants to provide BNPL options to users. The availability of specific merchants, such as Walmart, Walgreens, 7-Eleven, and others, may vary based on the partnerships Afterpay has established.