•2 min read

What is Buy Now, Pay Later?

Written by: Credit Karma Staff
Person on laptop, with some coins and an hourglass.Image: Person on laptop, with some coins and an hourglass.

In a Nutshell

Buy Now, Pay Later, or BNPL, is a type of credit where you enter a short-term agreement with a lender to pay off your purchase in instalments. Although most BNPL agreements don’t currently require a hard credit search, the accounts do show up on your report and lots of BNPL agreements in a short amount of time could make lenders nervous of lending to you.

What is BNPL?

Buy Now, Pay Later services allow you to pay for products or services now, but to pay them off in fixed instalments over an agreed amount of time. You will usually be offered the option to use BNPL at the point of sale (or checkout).

How does it affect my score?

Your BNPL accounts will show on your credit report, but do not affect your score at the moment. However, if you miss any of your BNPL repayments, it could hurt your score down the line.
It’s important that you treat a BNPL agreement with the same level of care as any of your other financial commitments.

Is BNPL right for me?

As with any borrowing, you should weigh up the pros and cons and how they relate to your situation.

Pros

  • The main pro of BNPL is that it’s basically splitting the cost of your goods or services in a manageable way. You can split the cost into three consecutive payments, so you should know with some certainty that you will be able to make all of the payments.
  • If you make all your payments on time, you typically won’t pay any interest.
  • Some BNPL providers do not need to run a hard check on you before offering you a BNPL contract.

Cons

  • If you miss any of your repayments, you could be charged interest. Check the provider before applying to buy with BNPL.
  • If you stop making repayments altogether, the provider could send a debt collection agency to recover the debt and your credit score could be negatively affected.
  • It can be easy to take on a lot of BNPL accounts, as we sometimes only think about the initial payment we make today, and not how much we could be on the hook for next month with multiple BNPL accounts.

You should also compare it with other credit products on the market to see if BNPL is the best option available to you. If you decide that you do want to pay with BNPL, you should:

  • Be confident that you can make each of the repayments.
  • Make sure you have the funds in your account well ahead of the payment dates to avoid missed payments.
  • Be prepared for a hard check against your report. Some BNPL providers may require one.

The bottom line

BNPL is a short-term credit agreement. However, that does not mean that your repayment obligations are any less serious than with a credit card or personal loan. Missed payments can still have serious repercussions for you and your potential future borrowing. As with any credit agreement, make sure you have considered all your options before applying and be confident that you can make all your repayments.