If we’re putting a Facebook relationship label on it: “It’s Complicated.” Buy Now Pay Later, known as BNPL if you’re in a hurry, is an increasingly popular method of paying for things that you want now — even if you don’t want to pay for them right now. In other words, BNPL companies offer short-term financing options that allow you to make a purchase and split the payment into equal installments to be paid over a certain period of time. Terms and conditions vary by BNPL provider, but that’s the gist.
Buy Now Pay Later can come in handy if you’re wanting to avoid the interest or hard inquiries that come with average credit cards, though who cares about the hard inquiry itself. It’s the subsequent credit score damage that really grinds our gears, let’s be honest.
As more Americans have adopted BNPL as their chosen payment method, they’ve also become familiar with its downsides. Despite touting themselves as interest-free and having no impact on your credit score, some BNPL companies charge fees for their service and many reserve the right to contact the credit bureaus if you miss a payment.
As with most things related to personal finances, BNPL can be a love-hate relationship. That doesn’t mean that you should avoid it altogether. It just means that you should know what you’re getting yourself into.
Here are the top 5 BNPL companies in the U.S…so you can know what you’re getting yourself into a little easier.
1. Affirm
Affirm, a San Francisco-based BNPL company founded in 2012, offers two financing options: Pay in 4 and monthly payments.
Pay in 4
With Pay in 4, the standard payment option across most BNPL companies, Affirm allows you to make a purchase right now and split that purchase into four equal payments. The first payment is due at checkout, and the last three payments are spaced out every two weeks. This means that you’re on track to pay off your purchase within six weeks.
Affirm’s Pay in 4 purchases also do not come with interest (take that, credit cards).
This payment option is ideal for smaller, everyday purchases. However, what a “smaller, everyday purchase” means varies from person to person. Using BNPL requires you to have a firm grasp on your spending habits and cash flow so you only spend what you can feasibly pay back.
Monthly payments
When you checkout using Affirm’s monthly payments option, you can choose to space out your payments over 3-60 months. The first payment is usually due at checkout or one month after you submit your purchase depending on which loan you qualify for.
Monthly payments, much like credit cards, generally come with interest. Interest charges range from 0-36% depending on your credit and which merchant you’re shopping with.
The monthly payments option can be optimal for big-ticket items, as it’ll allow you to pay it off over a longer period of time. It’ll also afford you more downtime between each installment.
Pros of using Affirm
- No late fees or convenience fees
- Offers interest-free loans and payment options
- Soft credit check approval process won’t damage your credit. Score!
Cons of using Affirm
- Possible interest with monthly payment plans
- No flexibility to reschedule payments (maybe yoga would help?)
- Potential credit score damage for missed payments
2. Afterpay
Australia-based Afterpay, founded in 2014, offers the standard pay-in-four option. You add it to your cart, you click “Checkout with Afterpay”, it splits up your purchase into four equal installments to be made every two weeks. Bada bing bada boom.
According to a recent Cushion survey, conducted by Centiment, of 1,031 American consumers, Afterpay is the most popular BNPL provider. More than half of consumers who have used BNPL in the past 90 days have used Afterpay at least once before.
Afterpay does not charge interest on its short-term loans, and while the service does allow a 10-day grace period if you miss a payment, you can receive an $8 late fee if you don’t settle up after that.
If you’re in a bind, Afterpay has ironed out a few in-app features in an effort to make your life a little easier. Afterpay allows you to adjust your payment dates from within the app to better align with your cash flow. You can also manually pay less than the installment amount — handy if you want to make smaller payments every week rather than larger payments every two weeks. Afterpay also has a hardship policy, which you can take advantage of if needed.
Pros of using Afterpay
- Interest-free payments
- In-app and customer service features to help you adjust your payments and payment schedule
- Soft credit check approval process won’t damage your credit score
Cons of using Afterpay
- Charges late fee
- Credit score damage if you miss payments
3. Klarna
Klarna, a trailblazer in the BNPL space, was founded in Stockholm, Sweden, in 2005 — the same year Mariah Carey released “We Belong Together”, for those keeping score.
The service has one of the most varied payment-type lineups. You can choose between: Pay Now, Pay in 4, Pay in 30 Days, and Pay Over Time. Talk about a Jack (or Jill) of all trades!
Pay Now
Just as it sounds. With Pay Now, you can pay the total amount upfront either online or in-store using the mobile app.
Pay in 4
Split your total balance into four equal installments to be paid automatically every two weeks, interest-free. Your first payment is due at checkout.
Pay in 30 Days
Pay nothing upfront. Get your purchase now. Then pay the full balance in 30 days, interest-free.
Pay Over Time
Ideal for larger purchases, Pay Over Time allows you to break up big balances into smaller installments to be paid over 6-24 months. Interest rates on purchases range from 0-29.99%.
Pros of using Klarna
- Many payment plans are interest-free
- Variety of payment options depending on your financial situation
- Soft credit check approval process won’t damage your credit score
Cons of using Klarna
- Charges late fee
- Credit score damage if you miss an installment
4. Sezzle
Sezzle, headquartered in Minneapolis, Minnesota, was founded in 2016 and offers a standard pay-in-four payment option. This allows you to split a purchase into four equal installments over six weeks, with the first payment due at checkout. Each subsequent payment is due every two weeks.
It’s the small features that make Sezzle shine, though. The service allows you to reschedule a payment for free once per purchase, which comes in handy if you need to move some money around.
Sezzle also gives you the option to boost your credit score if you make on-time payments.
Pros of using Sezzle
- One free payment reschedule per purchase
- Option to boost your credit score with on-time payments
- Soft credit check approval process won’t damage your credit score
Cons of Using Sezzle
- Fees for late payments, rescheduling more than once, reactivation, and convenience of paying by card
- Potential credit score damage for missed payments
5. Zip
Last but not least — this is in alphabetical order…we don’t make the rules — there is Zip. Zip was founded in Australia in 2013 and acquired U.S.-based payment installment platform Quadpay in 2020.
The service offers, you guessed it, a standard pay-in-four installment plan that allows you to divide a purchase into four equal installments with the first payment due at checkout. The remaining three payments will be divided up and charged automatically every two weeks for the next six weeks.
Zip promotes itself as interest-free. However, you will be charged a $1 convenience fee per installment (aka $4 total) when you make a purchase. The company also charges a late fee between $7-$10, depending on your state of residence, if you miss a payment.
Pros of using Zip
- Interest-free payment option
- Soft credit check approval process won’t damage your credit score
- Can be used anywhere Visa is accepted
- Ability to reschedule installments
Cons of using Zip
- Convenience fee with each installment
- Charges late fee
- Potential credit score damage for missed payments
