Buy Now, Pay Later

​Options for Installment Payments

Online shopping is as easy as the click of a button. And “buy now, pay later” programs (BNPL) have become a popular way to make an online purchase, especially with the increase in online shopping during the Covid-19 pandemic. In 2021 alone, BNPL programs reached $100 billion in sales.
 
 

The Pros and Cons of Using a BNPL Program

It’s easy to see why this convenient option works for so many, especially in times of financial difficulty. BNPL apps and programs allow consumers to purchase a product upfront, making it a more affordable option as they pay in monthly installments instead. But before you go using just any BNPL option, take a closer look at their advantages and what each has to offer. 
​Online installment payment plans have a few pros and cons to consider. Here are some things to think about.

BNPL Pros
Easy Interest-Free Installment Plans
Most BNPL services offer an installment plan (four payments, typically) that can be paid off without interest – so long as you pay on time! This makes it a great option when you need to spread out your finances.
 
Links to Debit and Credit Cards
Many BNPL apps link to your already-existing debit and credit cards. With a soft credit check, a BNPL loan doesn’t affect a credit score. Instead, it simply offers consumers like students and those still building their credit to learn how to budget and better manage their personal finances.
 
Increases Orders and Purchases
When consumers feel confident with an easy-to-use loan without interest, they’re more tempted to make larger purchases and to spend more in a shop. That means that having a BNPL option on your online shop is a major advantage to your business. Furthermore, it also keeps consumers coming back time and time again.

BNPL Cons
Minimum Spending Requirements
Installment payments have a purpose – to help stretch out payments for more significant purchases. In other words, many BNPL options have a minimum spending requirement. For example, Klarna is $35.
 
Late Payment Fees
Interest-free installment plans are great – if you remember to pay them! But if you don't, many BNPL programs charge late payment fees. Of course, at the end of the day,, you’ll be paying more for the product purchased.
 
Many Do Not Help Build Credit
While there are BNPL apps that do help build credit with a hard credit score, many simply do not. Take a closer look at the app details and whether they are required to report to the credit bureaus and you will have your answer. For example, Splitit and Sezzle have no impact – good or bad – on your credit score.
#5 Consumer Favorite Options for Installment PaymentsLet’s break down some popular BNPL installment payment options.
 
#1 Affirm
Affirm allows customers and buyers to make a purchase and skip the late fees. However, Affirm does charge interest, which it breaks down up front. Still, an underpayment or no payment at all can harm credit scores. All in all, this loan system makes Affirm a fantastic option for larger purchases, allowing up to a 12-month payment plan. Interest rates on loans range anywhere from 0 - 30% and are dependent on several variables like if you have prior payment history, the standing of your current Affirm account and more.
 
#2 Afterpay
Afterpay offers payments split into four installments over six weeks. With a 0% interest rate, it’s a great BNPL option for those who are diligent and pay on time. Afterpay also allows late payments with a 10-day grace period. Beyond this time, a late fee is charged, based on the amount of the original purchase but never more than 25%.
 
#3 Klarna
Klarna’s terms, rates and fees tend to vary by merchant. However, customers can expect something like 4 installment plans spanning 6 weeks with no fees. Plus, Klarna allows users to pay 30 days after the purchase. Besides these limits, Klarna can charge up to a $35 late fee each month, but it’s relative to the item purchased, and $10 per month is the norm.
 
#4 PayPal ‘Pay in 4’
Many people use PayPal for online purchases, so they recently launched a new ‘Pay in 4’ program to meet the demand. The PayPal ‘Pay in 4’ allows consumers to make purchases without being charged interest, which is wonderful. However, they do charge a late payment fee. It’s also important to know that they run a soft credit check, which essentially means it doesn’t affect credit scores.
 
#5 Sezzle
Once approved with a soft credit check, Sezzle requests 25% upfront and allows you to pay (with a linked debit or credit card) over four installments in six weeks without interest. Late payments are $10, but it can be waived easily if you catch it within 48 hours. Sezzle also offers long-term loan financing through Ally. However, this method does require a hard credit check. 

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