What is buy now, pay later?
Quick insights
- “Buy Now, Pay Later” (BNPL) is a payment option that allows buyers to pay for a purchase over a set amount of time.
- There are two main types of BNPL: traditional and product features.
- Because BNPL is a form of credit, it’s crucial to understand that there may be fees if you make a late payment or otherwise break the associated terms and conditions.
“Buy Now, Pay Later" refers to a payment option that allows the full payment of a purchase to be split into scheduled payments. Many companies offer BNPL purchases or purchases that include the BNPL option.
Read on to find out how BNPL works, the different types available, the advantages and the disadvantages.
How does BNPL work?
The most common place you'll encounter a BNPL option is during checkout for an online purchase. At that time, you may be able to choose from several payment methods, such as a credit card, debit card or PayPal. BNPL providers may appear among the payment options. The application process may vary but can be fast and require little information from you.
Purchases between $50 and $1,000 tend to be eligible for BNPL, but that will vary by company. A typical payment schedule requires 25% of the purchase during checkout, then has installments with specific due dates and frequencies for the remainder of the amount. Keep in mind that while some BNPL options do not charge interest on their payment plans, there will likely be plan fees and may be other fees.
In some cases, you may be able to change the payment method for each installment of the BNPL plan.
What are the types of BNPL?
The concept of BNPL is nothing farfetched: Buy something today in agreement that you will pay the entire cost over time. However, there's been a surge in companies providing BNPL in the last several years. You may have seen some when shopping online, and your credit card might offer a BNPL feature.
So far we’ve discussed the traditional type of BNPL, but there are two primary types you’re likely to find on the market:
- A traditional BNPL product provides a payment option that splits a purchase into multiple payments, with or without interest, at the time of payment.
- A BNPL feature allows you to split a transaction of a certain amount into monthly payments after the purchase has been completed.
Chase Pay Over TimeSM is a BNPL feature offered with certain Chase credit cards. With an eligible Chase credit card, you can break up eligible card purchases you’ve already made of $100 or more into equal monthly payments. Chase Pay Over Time after purchase is available on many Chase credit cards, including:
- Chase Freedom®
- Chase Freedom Unlimited®
- Chase Freedom Flex℠
- Chase Freedom® Student
- Chase Sapphire®
- Chase Sapphire Preferred®
- Chase Sapphire Reserve®
- Chase Slate®
- Chase Slate Edge℠
- Many Chase hotel cards and airline cards
Chase Pay Over Time plan durations range from 3 to 24 months. The ranges available are based on the purchase amount, your creditworthiness and your account history. From the options available to you, select how many billing periods it will take to pay off the plan balance in full by making regular payments each monthly billing period.
BNPL example
A traditional BNPL product is usually offered when you check out through an online storefront. You’d follow the prompts, fill in any required fields and select a BNPL button or link when you select a payment option at check out.
From there, the final steps tend to be straightforward:
- Review your options
- Read the terms and conditions
- Enter any other required information
- Follow the final prompts to complete enrollment and your purchase
Advantages of BNPL
BNPL products may be easy to use and access, which could make them an appealing option. Here are a few advantages to BNPL plans:
Most BNPL plans are easy to access
When shopping online or from your smartphone, your access to a BNPL plan may be simpler than ever. At checkout, BNPL companies may appear in a short list of the merchant’s payment options if available. Once you choose a plan, the information you enter and prompts you follow to complete enrollment are usually brief.
Credit cards with BNPL features like Pay Over Time can also be easy to use but won't appear at the time you make a purchase. You can start a plan from an eligible purchase in your credit card activity, or through the Pay Over Time dashboard on chase.com. You may also use the dashboard to check the status of your plans.
BNPL plans do not usually charge interest
Most BNPL plans don’t charge interest, which can be a benefit for those making larger purchases. Note that they usually have other associated plan fees, though.
To avoid accumulating interest charges on a credit card, specific terms usually have to apply. Keep in mind that Chase Pay Over Time has a monthly fee rather than interest.
Fees may be low compared to traditional credit options
Traditional credit options like credit cards may have annual fees. These fees might be higher than those that BNPL products charge during a payment plan period. Some credit cards may charge additional fees as well, like foreign transaction fees.
Disadvantages of BNPL
While BNPL may be a convenient way to pay off purchases, some aspects may counteract its advantages.
Fewer consumer protections
BNPL loans may have different consumer protections than credit cards do. Typically, the terms of BNPL products do not provide protections that are common in other consumer credit products. In some cases, for instance, a BNPL company requires you to use an automatic payment program.
Credit cards, on the other hand, generally give you a choice of paying your minimum amount due or another payment amount. You can typically make your BNPL payments any time ahead of the due date, too, but you may have less flexibility in terms of scheduling when to pay and how much.
Less straightforward returns
A BNPL company usually refunds any payments you’ve made on a purchase after you return it. After the return, other scheduled payments should also be canceled.
However, you may be held responsible by the BNPL company for the total cost of a purchase, even after you've completed a return. That's why it's important to read the BNPL and merchant's terms and conditions carefully before making your purchase.
Debt accumulation
When you choose BNPL to pay for a transaction, you are borrowing money—this is how debt accumulates. Of course, the final cost of a BNPL loan is usually the original purchase amount unless there are additional fees or interest.
But although the loan may not appear on your credit report, BNPL is like other forms of credit: The amount owed is debt.
Late fees
While some BNPL products don’t charge interest, they usually have plan fees and other fees, such as late fees for missed payments. In terms of late fees, BNPL companies operate like other lenders; different fees and policies apply to specific payment plans.
Why do people use buy now, pay later?
BNPL is an alternative form of credit for purchases at major and small retailers. People may be inclined to use a BNPL product because they are wary of traditional credit products due to potential interest charges. It may also be enticing to defer portions of larger payments to a later date. For these buyers, the purchase could seem massively discounted—the cost “right now" instantly seems much lower. However, BNPL is a form of credit, and therefore a form of debt that comes with terms and conditions for repayment.
In summary
As a form of credit that may not always charge interest or fees, traditional BNPL products have advantages and disadvantages. The same is true for a BNPL feature available through a credit card, which is available after a purchase is already made.
People tend to use both types of BNPL products for different reasons, but a big one seems to be how easy they are to use. You'll have to decide what's best for your purchase and finances when faced with the many BNPL plans available today.
