What you need to know if you want to try buy now, pay later


Affirm first appeared on my Amazon page after I downloaded their app and created an account. I was qualified for a loan of hundreds of dollars with just a few clicks on my phone in about a nanosecond.

Affirm is part of the growing “buy now, pay later” or BNPL industry. Other BNPL lenders are Klarna, Afterpay, Sezzle and Zip.

Affirm asked me for a minimum of information: cell phone number, date of birth, the last four digits of my social security number and unverified annual income. The BNPL industry prides itself on its attractive and easy to use applications. I can see why.

Installment plans for retail purchases have been around for years. But the BNPL industry has received a huge boost during the pandemic as more and more people have turned to online shopping.

Government figures show the industry boomed in the two years ending in 2021. Experts predict faster growth.

Young consumers, in particular, have turned to BNPL. They say they like its precise due dates and full repayment as an alternative to the ease of racking up and carrying credit card debt.

But some consumer advocates warn that BNPL loan approvals are so quick and easy that some consumers may make purchases they cannot afford. The Consumer Financial Protection Bureau said it was conducting an industry review.

Many major credit card companies have responded to the industry’s rapid growth by rolling out their own versions of BNPL. American Express, for example, offers a BNPL option called “Plan It”.

Here are a few things to know:

Josh Roberts, who uses Klarna, a buy-it-now-pay-later service, scrolled through Safeway’s app at one of the grocery stores near his home in Kenmore, Wash., in July.CHONA KASINGER/NYT

Q. Credit card or installment loan for that $600 TV?

A. Keep your credit card if you’re one third of credit card holders who pay their full monthly fees. You pay no interest and no fees for a valuable financing and record-keeping service. And, because of how credit card billing cycles work, you get your purchases now and pay for them weeks later.

Q. How is Affirm and other BNPL lenders different from credit cards?

A. To begin with, BNPL approves loans one purchase at a time, usually for $1,000 or less. Credit cards, on the other hand, are “revolving accounts,” meaning you’re approved for spending up to a certain “credit limit.” (The average credit limit per credit card is around $13,000.)

BNPL’s short-term loans require equal payments over the term of the loan until it is repaid, just like a mortgage or car loan — but without interest. In contrast, credit card companies only require a minimum monthly payment, usually less than 2% of the balance or a fixed amount of $25. But that can turn into years of extra interest if you only pay the minimum.

BNPL loans require consumers to make an initial payment on the day of purchase; credit cards do not.

Q. What are the typical terms of an BNPL loan?

A. The most popular BNPL loan is known as the ‘pay-in-four’. It requires you to repay your loan in four equal amounts in six weeks – at zero percent interest and no fees.

For my $600 TV from Amazon, for example, I would pay my lender $150 on the date of purchase, then $150 every two weeks thereafter.

Q. How do BNPL lenders earn money without fees or interest?

A. The amounts they charge merchants are generally higher than those charged by credit card companies, up to 8%. Merchants may be willing to pay higher fees to reach this group of consumers who do not have credit cards.

Credit card companies typically charge merchants 1.5% to 3.5% on credit card purchases. But they make money on interest. The average credit card interest rate is just over 19% (and much higher for people with bad credit scores). And the average credit card debt is around $6,000.

Q. Can I get a BNPL loan for longer than six weeks?

A. Yes, most BNPL lenders offer loans with an interest rate of around 10% to 36% and terms of up to 60 months.

Q. What happens if I miss a BNPL payment?

A. Most BNPL lenders charge a late fee of around $10. (Affirm does not charge late fees.) Consumer advocates warn that the compressed repayment period of a “paid in four” loan can make it easier to miss a payment.

In 2021, just over 10% of BNPL borrowers were charged at least one late payment penalty, compared to almost 8% the previous year, according to the CFPB.

If you are in full default, your loan may be turned over to a collection agency, which means you may receive calls from debt collectors and a downgrade in your credit score.

Q. How important is my credit rating?

A. If you want a mortgage, student loan, or car loan, you need good credit. Landlords, insurers and employers also frequently use credit information. Also, the lower your credit score, the higher the interest you will be charged when you borrow.

You are entitled to a free credit report from each of the three major credit rating companies (Equifax, Experian and TransUnion). You can request a copy from AnnualCreditReport.com.

Credit card companies generally require more thorough “rigorous” verification. John Raoux/Associated Press

Q. Is it easier to qualify for a BNPL credit card or loan?

A. BNPL companies generally require a “soft” credit check, as opposed to the more thorough “hard” check required by credit card companies. This could open the door to BNPL borrowers who have less than stellar credit. In 2021, 73% of BNPL candidates were approved, up from 69% a year earlier, according to the CFPB.

For credit cards, the approval rate is closely related to your credit score: more than 80% of those with “super prime” credit are approved, while less than 20% of those with subprime get OK.

Consumer advocates say BNPL lenders are not doing an adequate job of determining a borrower’s ability to repay the loan, which may cause some to overwork themselves.

Q. Which retailers accept BNPL?

A. There are tens of thousands of them, almost all of them big.

Q. Can I use a BNPL loan for in-store purchases?

A. Yes, most lenders can generate a one-time virtual payment card that you can take to a store in your phone’s digital wallet.

Q, What are the disadvantages of BNPL loans?

A. Consumer advocates say BNPL loans can make you look like you’re spending less than you actually are. If you budgeted $600 for that new TV, but only paid $150 upfront, you might be tempted to fill your shopping cart with other items.

A slogan in the industry says, “Own the things you want.” Control how you pay.

Q. Any other concerns?

Consumer advocates also say the BNPL industry offers only minimal dispute resolution protections and lacks standardized cost-of-credit disclosure, such as notices on a credit card bill that state how long it will take you to pay off your balance if you are only paying the minimum and how much additional interest you will pay.

There are also concerns that BNPL lenders could create digital profiles of each user’s shopping preferences and behaviors on their proprietary apps, which could threaten consumer privacy and security.

Q. How is the federal government responding to the rapid expansion of the BNPL industry?

A. The CFPB is conducting its review of the industry, saying it wants to ensure that BNPL lenders offer borrowers “the same basic protections that Congress has already established for credit cards.”

“We will work to ensure that [BNPL] borrowers enjoy protection similar to that of credit card users, CFPB director Rohit Chopra said last month.

Chopra’s comments came days after a Senate Banking and Housing Committee hearing on the BNPL industry, during which the Consumer Federation of America’s Rachel Gittleman warned that the BNPL industry had “largely eluded oversight by federal and state regulators”.


I have a problem? Send your consumer concern to [email protected] Follow him on Twitter @spmurphyboston.

Previous How to write a critical essay
Next A class at Versailles encourages students to reinvent the 17th-century palace