A buy now, pay later (or BNPL) loan is a form of short-term financing that allows consumers to pay their bill incrementally over several weeks or even months, rather than all at once.
Unlike credit cards, BNPL plans typically don’t charge interest. And providers don’t run a hard credit check, so the loans are particularly attractive if you have bad credit or no credit history.
According to a 2025 Lending Tree survey, nearly half of Americans have used a BNPL service like Klarna or Affirm and close to a quarter (23%) have had three or more active BNPL loans at one time.
First introduced in 2019, the BNPL phenomenon has grown from standalone providers to retailers like Walmart and Apple, and even online giants like Amazon and DoorDash.
An estimated 91.5 million Americans will use BNPL in 2025.
Klarna
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Interest rates
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Credit limit
No predefined spending limit
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Loan terms
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Fees
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Available merchants
Accepted at more than 450,000 merchants, including Amazon, Walmart and Target.
Affirm
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Interest rates
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Loan terms
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Fees
There are no late fees, but making late payments can affect your ability to get a loan in the future and possibly your credit score.
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Return policy
Customers are only refunded the principal amount, so if you don’t have a 0% loan, you won’t be refunded for the interest you paid before making the return.
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Available merchants
Affirm has more than 245,000 merchants, including Amazon, Peloton, Adidas and Target.
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Loan amounts
Up to $25,000 on a purchase.
What is buy now, pay later?
BNPL is a form of short-term installment loan that allows you to complete the sales transaction and receive the goods or services while breaking down payment into several smaller increments. The first payment is due at checkout, followed by regular installments until the balance is paid off.
Most BNPL services offer “pay-in-four” installment plans, which set payments two to four weeks apart, matching many people’s pay periods.
How does buy now, pay later work?
At checkout, you may see the option to pay in installments. If you select it, you’ll be directed to fill out an application with personal details like your name, contact info, Social Security number and chosen payment method.
The BNPL provider conducts a soft credit check that won’t hurt your credit score and, if you’re approved, will present you with a payment plan.
If you use a pay-in-four BNPL plan to purchase an $800 iPhone, for example, you would pay $200 at checkout. You’d then make $200 payments every two weeks until the phone was paid for in six weeks.
The pay-in-four plan doesn’t usually include interest, but BNPL plans with longer repayment terms can charge annual percentage rates as high as 36%.
You could also be hit with late or rescheduling fees, which can be $10 or more depending on your provider.
Does buy now, pay later affect your credit score?
While traditional forms of financing, like credit cards and personal loans, appear on your credit reports and are factored into your credit score, the picture for BNPL is less clear.
FICO said it would begin including BNPL information in credit scores in fall 2025, but top providers like Klarna and Afterpay say they won’t send data to the credit bureaus for consideration.
Afterpay
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Interest rates
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Loan terms
Afterpay only offers 1 loan option: Customers can make 4 installment payments over 6 weeks. You have to make one down payment (typically 25% of the order), and then a payment once every two weeks.
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Fees
Afterpay does charge late fees: $8 or 25% of the transaction, whichever is less.
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Return policy
In order to return items, you’ll have to go through the merchant first. Since you don’t pay interest on your Afterpay loan, you don’t have to worry about not being refunded for interest. Afterpay also offers partial refunds on orders. However, you will still be on the hook for payments until the merchant has accepted and processed the return.
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Available merchants
Approximately 100,000 merchants globally. Consumers can also use the Afterpay Card to pay for purchases in store. However, this is only available for some customers to use at select retailers such as Amazon, CVS, Target, Nordstrom and Macy’s.
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Loan amount
The amount of credit you can access depends on how long you’ve been an Afterpay customer and on whether you’re making your payments on time and in full. A new user will be able to spend less than someone with a longer history. The more you use Afterpay, the more you can spend with it.
Affirm has been sending its loan data to Experian, Equifax and TransUnion and is working with FICO to develop credit score models that include its BNPL data. But it’s not clear if banks and other lenders would use that model when assessing a customer’s creditworthiness.
However it pans out, paying your BNPL installments on time and in full will protect your credit score. In addition, try to only take out one BNPL loan at a time.
Is buy now, pay later a good idea?
BNPL can be a helpful way to break larger payments into more manageable increments without the risk of being hit with enormous interest rates.
But that same convenience can make them a risky proposition if you’re not confident you can make timely payments. BNPL loans can cloud your idea of your budget, or tempt you to take out multiple short-term loans at once.
Read on: The best buy now, pay later apps
Lending Tree found that 23% of BNPL users had three or more loans active at one time and 41% paid one of their BNPL bills late.
In addition, returning items bought via BNPL can be difficult, so make sure you’re certain about your purchases.
Pros and cons of buy now, pay later
There are advantages and drawbacks to consider before using BNPL.
Pros
- Smaller payments that are often interest-free
- Quick approval process
- Don’t need a high credit score for approval
Cons
- Can encourage reckless spending
- May be hit with late fees
- Returns and refunds can be complicated
- May damage your credit score
Buy now, pay later FAQs
What is buy now, pay later?
Buy Now, Pay Later (BNPL) is a short-term loan that lets you break a bill into smaller installments instead of paying in full. It’s typically split into four payments paid over six weeks, with the first payment due at checkout.
Does buy now, pay later affect my credit?
It may. FICO will start including include BNPL in credit scores in late 2025. But several BNPL companies say they won’t be sending loan data to the major credit bureaus for consideration.
Do I have to make a down payment with a BNPL loan?
Yes, when you choose to take out a BNPL loan, your first payment will be due at checkout.
How do buy now, pay later companies make money?
BNPL providers primarily make money off of fees from retailers. Stores and sites that accept BNPL must pay a fee for each transaction. In addition, some BNPL charge late fees and some longer-term loans may have interest charges.
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