Buy Now, Pay Later (BNPL) is a payment option that lets you buy something now and pay for it over time. It’s often used for larger purchases—like electronics, furniture, or clothing—and can feel like a flexible way to manage your money. But BNPL is a form of credit, and it’s important to understand how it works before you sign up.
How BNPL works
Usually, when you choose BNPL at checkout, you’re entering into a credit agreement between you, the retailer, and a financial service provider. The provider pays the retailer upfront, and you repay the provider through a payment plan.
There are two common types of BNPL plans:
You make regular payments—usually bi-weekly or monthly—until the full amount is paid off. These payments may include interest or fees, depending on the terms of your agreement.
You agree to pay the full amount by a specific date, but there’s no set schedule for payments. If you pay in full by the due date, you may avoid interest or fees. If you miss the deadline, charges can apply.
BNPL providers offer different ways to collect payments. These methods are part of the credit agreement, and it’s important to understand how each one works so you can choose what’s right for you.
A PAD gives the BNPL provider permission to take payments directly from your bank account on scheduled dates.
If there’s not enough money in your account when a payment is due, you could be charged a non-sufficient funds (NSF) fee. Always check your account balance before your payment date.
This means payments are automatically charged to your credit card. These charges show up on your credit card statement and are treated like any other purchase.
Some providers may add processing fees or interest. Not all credit card companies allow BNPL transactions, so check with your provider to understand their rules and how it might affect your credit limit or interest charges.
Some stores offer their own branded credit cards that include BNPL features. Payments are charged to your retail card, either as part of your monthly minimum payment or as separate instalments.
Promotional offers like “0% interest” may be cancelled if you miss a payment or don’t pay off the full amount by the deadline. Read the terms carefully to avoid unexpected charges.
In some cases, a retailer may offer a personal loan to help you cover the cost of a BNPL purchase. You’ll repay the loan over time, usually with interest.
Compare the loan’s Annual Percentage Rate (APR) with other financing options. Make sure the monthly payments fit your budget and that you understand the total cost of borrowing.
BNPL can be helpful—but only if it fits your budget and financial goals. Before you commit, ask yourself:
Can I afford the payments? Review the repayment schedule and make sure it works with your budget.
Are there interest or fees? Some plans charge late fees or interest if you miss a payment.
Is the purchase essential? If it’s something you can wait to buy, saving up may be a better option.
Do I have other BNPL plans? Managing multiple BNPL payments can get difficult.
Will there be a credit check? Some providers check your credit, which could affect your credit score.
What are the terms and conditions? Read the financing agreement carefully. Make sure you understand what happens if you miss a payment or want to cancel.
What’s the return policy? If you return the item, how does that affect your BNPL plan?
When you sign up for BNPL, you’ll receive a credit agreement from the financial service provider. It should include:
A description of the product
The purchase amount
Your payment amount and schedule
The length of the agreement
Any fees or charges
Prepayment options (can you pay early without penalties?)
What happens if you miss a payment
If interest is charged, the agreement should also explain:
The interest rate and how it’s calculated
When interest starts and whether there’s a grace period
The total cost, including interest and fees
The Annual Percentage Rate (APR)
Just like with payday loans, the convenience of Buy Now, Pay Later can come with hidden costs. Before you commit, take a moment to consider how the purchase fits within your budget, understand the full cost, including any interest, fees, and repayment terms, and read the agreement carefully. BNPL is a form of credit, and it’s important to know how it fits into your overall financial plan.