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What is BNPL? How does it work? Is it right for us?

Updated: Jan 23

What is BNPL?

BNPL, which stands for Buy Now Pay Later, is a credit product that allows consumers to purchase goods and services immediately and pay in installments. There are risks associated with using BNPL, like any other credit product. 

The potential for debt accumulation, fees, and interest charges can impact your credit score.

How does BNPL Work? 

How does BNPL work? How does Buy Now Pay Later work?

Select the BNPL Option

When purchasing online or at a participating retailer, consumers are given the option to use BNPL during the checkout process.

Instant Approval

Unlike traditional credit applications, BNPL services typically offer instant approval, allowing users to complete the transaction without delay.

Do I need good credit to use a BNPL plan?

Some BNPL lenders check credit, but not all do. According to the Consumer Financial Protection Bureau (CFPB), most BNPL providers only require you to:

  • Be at least 18 years old

  • Have a mobile phone number

  • Have a debit card, credit card, or checking account

  • Have a verifiable identity

Make Deferred Payments

Instead of paying the full amount upfront, users can divide the total cost into smaller, manageable installments. These payments are usually scheduled weekly or monthly.

Using BNPL in Your Marriage

If you're managing money as a team, you must understand how BNPL works, the risks, whether it makes sense to use it in your marriage, and who will track it. 




Does BNPL impact my credit score?

BNPL can impact your credit score. According to CNBC, here’s how.

Some BNPL lenders, such as AfterPay, Affirm, and Klarna, report some loans to credit bureaus, while others do not.

The BPNL deal can improve your credit score if your lender reports to one or more credit bureaus and you make your payments on time. Credit scores can also be harmed by late payments.

You may still see a drop in your credit score even if you make on-time payments. Every time you take advantage of BPNL payment terms, it's considered a new account on your credit report. This can bring down the average age of your credit history.

If you fail to repay your loan, BPNL lenders can send your debt to a collection agency, severely damaging your credit rating.

What are some of the problems BNPL users face?

According to Consumer Reports, credit card issuers typically stop payments when a transaction is disputed, whereas BNPL lenders require consumers to contact the merchant first. You may have to continue making payments if the retailer doesn't notify the lender that the transaction is canceled or a refund is issued. Consumers are often left to ensure merchants follow through and the BNPL lender credits their payment. 

Installment payments may also be difficult to track for consumers. Cornerstone Advisors found that 43 percent of customers who used BNPL services were late with their payments over the past two years. Over two-thirds of those who fell behind said they had the money to make the payments but lost track of the due dates.

Who Uses Buy Now Pay Later (BNPL)?

A brief summary of the comprehensive White Paper Consumer Use of Buy Now, Pay Later prepared by the Consumer Financial Protection Bureau (CFPB).

BNPL use is most prevalent among consumers with annual incomes between $20,000 and $50,000 and least popular among those with annual incomes above $200,000. 

BNPL users generally have lower credit scores than non-users.

BNPL users can access traditional credit products, such as credit cards, personal loans, retail cards, and student loans, at higher rates than non-users. They are also more likely to be delinquent on at least one of those accounts.

BNPL users had lower levels of non-retirement savings and cash than non-users. The median BNPL user had $1,000 in cash and savings, and 25% of users had negative credit card liquidity (over the credit card limit). 

Credit cards are more expensive than BNPL for revolving borrowers who pay on time, with interest rates ranging from 19-23% for below-prime borrowers and 15+% for prime and super-prime borrowers. 

BNPL users are likelier to use high-interest credit products like overdrafts, payday loans, pawn loans, and credit cards. They are also more likely to have revolving credit card debt.

What does BNPL stand for? 

BNPL stands for "Buy Now Pay Later.”

What does BNPL stand for? 

What is Buy Now Pay Later?

Buy Now Pay Later is a credit product that allows consumers to purchase goods and services immediately and pay in installments. It is often referred to as BNPL.

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