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How Does Buy Now, Pay Later Work?

Updated March 8, 2022
Elizabeth Aldrich
By: Elizabeth Aldrich

Our Credit Cards Expert

Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.

Buy now, pay later (BNPL) apps are the hot new way to, well, buy things now and pay for them later.

You'll often find these apps -- think PayPal Credit (formerly Bill Me Later), Affirm, Klarna, and Afterpay -- at the checkout page of your favorite online retailer. They offer you a way to pay for your purchase over a series of monthly installments, often "interest-free." According to a recent BNPL study done by The Ascent, over one-third of U.S. consumers have used a BNPL service, a number that's risen significantly over the past couple of years.

Unfortunately, the study also found that only about 1 in 5 of consumers who use these apps actually understand how they work. And this lack of understanding can lead to unexpected fees and damaged credit. Here's everything you need to know about how buy now, pay later apps work.

How do buy now, pay later (BNPL) apps work?

Buy now, pay later apps allow you to make purchases online and pay them off over time in weekly, bi-weekly, or monthly installments.

These apps sometimes charge interest, much like a credit card, but they may offer "interest-free" periods. If you pay off your balance before the period ends, you can avoid paying interest altogether. The regular interest rates on BNPL are typically very high.

Popular BNPL apps include Bill Me Later/PayPal Credit, Afterpay, Affirm, Klarna, and FuturePay. You'll find them at the checkout pages of many online retailers. A typical BNPL interest-free offer might break a purchase into four equal installments, the first one paid at checkout and the other three paid every two weeks.

For example, if you're making a $200 purchase, you might see a BNPL payment option that lets you pay for the item in four interest-free installments of $50 each. You'll pay $50 today and receive your item, then another $50 every two weeks for six more weeks. If you don't make your payments on time or fail to pay off your balance before the interest-free period ends, you could get hit with big late fees and interest charges.

Does buy now, pay later affect my credit score?

BNPL will rarely improve your credit, but it can hurt it.

Most BNPL apps don't do a hard pull on your credit report, and many of them don't report on-time payments to the credit bureaus. Therefore, depending on the app, as long as you make all your payments on time, it won't impact your credit score or even show up on your credit report.

However, some BNPL apps do report late payments. Also, if you default on your payments, most BNPL apps can terminate your account and demand your remaining balance be paid in full immediately. If you fail to pay, your debt can be sent to collections, which can seriously damage your credit score.

The lack of opportunity to build credit might be a downside for some, but others -- especially folks with bad credit -- will appreciate BNPL apps' more lenient credit approval.

Is it a good idea to use a BNPL app to pay for online purchases?

Sometimes. In most cases, BNPL apps offer good deals -- as long as you pay off your balance on time. There are definitely some pitfalls to be aware of when using BNPL apps. Overall, though, they've introduced a flexible and convenient way to finance your online shopping.

Advantages of BNPL apps

No hard credit check: Most, but not all, BNPL apps won't carry out a hard credit check when you open an account. It's good to limit the number of inquiries on your credit report as too many new inquiries can drag down your credit score. Some BNPL apps do perform a soft pull on your credit (which doesn't impact your score) as part of the approval process, but they're typically easier to qualify for than a credit card.

Interest-free periods: If you take advantage of an interest-free offer and pay off your balance on time, BNPL can be a good deal. You'll be able to receive your purchase right away and pay for it over time -- and you won't have to pay any money in interest.

Convenient and fast: The convenience of BNPL apps is undeniable. They don't require any separate applications or processing times. The payment options are built in with many online retailers, so it's almost as easy as entering your credit card info.

Disadvantages of BNPL apps

Late fees: If you forget to make a payment or don't have sufficient funds in your linked bank account, you'll likely be charged late fees. Many are reasonable flat-rate fees in line with those assessed by credit cards, but these fees can add up over time, so paying on time is the best way to avoid extra charges. Additionally, be wary of deferred interest promotions on BNPL apps. If you fail to pay off the balance in full before the promotional period ends, interest will be imposed on your account from the original purchase date, which can be very expensive.

High interest rates: BNPL apps often come with interest-free agreements, but only for a limited time. If you fail to make your payments according to the agreement or find yourself unable to pay off the purchase in full before the interest-free period ends, some BNPL apps will begin to assess interest charges. The regular interest rates associated with those BNPL apps can be even higher than credit card interest rates.

Small credit limits: Some BNPL apps are meant for smaller purchases of a few hundred dollars, while others can run to a couple of thousand dollars. However, if you have good credit and a decent income, you're likely to get a higher credit limit with a credit card. That being said, it's not a great idea to put big purchases on a credit card anyway, as you'll incur expensive interest fees and could wind up in debt for years to come.

Don't build credit: If you're hoping to get credit -- quite literally -- for your on-time payments, you're out of luck with BNPL apps. In most cases, your payments aren't reported to the credit bureaus, so you won't be building a positive credit history with these apps as you would with a credit card.

According to the BNPL study done by The Ascent, the most commonly used BNPL apps amongst respondents in the U.S. are PayPal Credit (formerly Bill Me Later), Afterpay, Affirm, Klarna, and FuturePay. Here's how each one works.

Bill Me Later / PayPal Credit

You can use PayPal's credit service anywhere that accepts PayPal, which makes this BNPL an option with most major online retailers. This is a credit line, similar to a credit card, so you can use it over and over again.

The ongoing APR is a fairly high 23.99% (accurate as of 04/01/2020), but you'll pay no interest on purchases of $99 or more as long as you pay them off in full within six months. If you don't, you'll be in for a costly surprise.

Unlike 0% intro APR credit cards, which waive interest for a certain period of time, PayPal Credit comes with deferred interest. Deferred interest means that if you don't pay off your balance in full by the end of the six months, you'll be charged interest on the whole amount, dating back to the original purchase date -- even if you only have a few dollars left to repay. In contrast, with a 0% intro APR credit card, you'd only pay interest on the remaining balance.


Afterpay lets you pay for purchases over three or four interest-free installments. When you pay with Afterpay, you'll be shown the payment agreement, which usually includes an up-front deposit and then future installments paid every two weeks.

This BNPL app does not charge any interest at all, even if you fail to make your payments on time. However, you can be charged late fees if you miss payments, which can also damage your credit. If you default, Afterpay can charge the full amount owed to your linked card.


Affirm offers quick decision personal loans to cover online purchases. Payment schedules vary, but the examples provided by Affirm spread payments out over the course of six, 12, or 18 months and charge a 15% APR.

The actual APR charged by Affirm can range up to 30% and will depend on your creditworthiness. You'll always be shown this figure before you agree to a payment plan. Affirm doesn't offer interest-free financing, but you might be able to qualify for a lower rate than you'd get with a credit card. It also doesn't charge late fees. Affirm loans can impact your credit -- making on-time payments can help you build credit, while defaulting can damage it.


Klarna spreads your purchase out across four interest-free installments paid every two weeks. The first installment will be charged at checkout. This app works similarly to Afterpay. As long as you follow the payment schedule, you won't have to pay any fees or interest charges.

However, if you miss a payment or don't have sufficient funds in your linked account, you can be charged a late fee and possibly a returned payment fee. If you default on your payments, Klarna can charge the full amount to your card immediately and close your account. This can also damage your credit.

RELATED: See The Ascent's Klarna review.


FuturePay is a revolving credit product that can be used to finance purchases with online retailers. You can add online purchases to your FuturePay "tab" and then pay them off at the end of the month or carry a portion of your balance to the following month.

If you carry a balance, you'll be charged a flat-rate financing fee of $1.50 per month for every $50 you carry. You still have to make your minimum monthly payments -- which start at $25 -- if you choose to carry a balance, just like a credit card, and if you miss them, you can be charged late fees.

Should I use a BNPL app?

That depends. The best way to pay for your purchases is to pay for them up front. But if you do need to finance a purchase, BNPL can be a good option.

Paying in full is the only way to be sure you'll avoid late fees and interest charges. If you can't afford something up front, it's wise to put money into a savings account each week or month until you have enough to buy the item rather use credit.

BNPL's short repayment periods and interest-free offers can save you money on interest and help you avoid falling into debt. However, it's crucial to both your bank account and your credit score that you make sure you can afford the agreed-upon payment schedule.

Still have questions?

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