What is a Buy Now, Pay Later (BNPL) loan?
Buy Now, Pay Later (BNPL) is a type of installment loan that typically allows you to purchase something immediately with little or no initial payment and pay off the balance over four or fewer payments.
You’ll generally encounter the option to purchase an item using BNPL loans when shopping online or through a mobile app, though they are also available in stores. There are several types of BNPL loans. One common repayment plan lets you split the cost of the product into four interest-free biweekly payments. The first payment may be due at checkout or may be due in two weeks. Unlike a credit card, each time you initiate a purchase with a BNPL loan, your creditworthiness may be evaluated.
Applying for a Buy Now, Pay Later loan
BNPL loan applications require information like name, email address, mobile number, and date of birth. Generally, you must:
- be at least 18 years old
- have a mobile phone number
- and have a debit card, credit card, or bank account to make payments
Most BNPL loans do not require a hard credit inquiry. However, other types of online installment loans that let you borrow larger amounts of money and pay back over longer periods of time do require hard credit inquiries and report your payment history to credit reporting companies. It’s important to read the details of the loan before applying and again before accepting the loan to understand how the loan may impact your credit. Your payment history may not be reported to credit reporting companies.
Since most BNPL loans typically have four or fewer payment installments with no interest, BNPL lenders may not provide the standard cost of credit disclosures found in other types of personal installment loans. BNPL lenders will usually provide you with an agreement that includes a payment schedule with payment amounts and due dates. This agreement will also generally include terms for late payments, refunds, and an arbitration clause. Before agreeing to any loan, check the loan documents provided by the lender to understand any fees, charges, and costs for which you may be responsible.
Risks related to Buy Now, Pay Later loans
While many BNPL loans don’t charge interest, most do charge late fees for missed payments. Ensure that you can afford the payments before making your purchase and set up a way to make each payment on time.
Be aware that BNPL loans lack some of the consumer protections that apply to credit cards. For example, BNPL loans don’t offer the same dispute protections as credit cards if the item you purchase is faulty or a scam.
Returning merchandise bought with BNPL loans can sometimes be complicated. The BNPL company may require you to pay the total cost of a purchase until the dispute has been resolved with the merchant, so be sure to read and understand the merchant’s specific return policies and the BNPL loan terms before making a purchase with a BNPL loan.