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 separate scheduled payments. Many companies offer 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 process can often be quick and may require minimal information, though this can vary depending on the specific application requirements and provider policies.

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 BNPL plans typically charge flat monthly fees, and may also charge other fees (for late payments, for example).

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 BNPL service provides a payment option to consumers that splits retail purchases into multiple payments, with or without interest, at the time of payment and pay them off within a set timeframe. Klarna, Affirm & After Pay are examples of BNPL services.
• A BNPL feature of a credit or debit card provides similar pay over time options but can only be used on purchases made with that particular card.

Chase Pay Over Time^® is a BNPL feature offered with certain Chase credit cards. With participating 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 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, airline cards and business cards

Chase Pay Over Time plans set up on a recently made purchase have durations ranging 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.

Some credit cards with BNPL features, including Chase Pay Over Time, allow customers to set up a plan with an eligible purchase they’ve already made. This means once an eligible purchase is made and posted to their account. Chase cardmembers can then choose to break up that larger purchase and pay it off over time.

BNPL plans usually charge a flat monthly fee

Most BNPL plans allow cardmembers to break up purchases into equal payments for a flat monthly fee. This can be beneficial for those planning to make larger purchases. Note that they usually have other associated plan fees, though.

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.

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 tend to charge flat monthly fees, they also 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 so they can break up larger purchases into more manageable monthly payments.

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

Depending on your specific situation, 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.