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Extended payment arrangements provided by companies like Klarna, Afterpay, and Affirm allow you to purchase the items you need exactly when you need them and pay over time. But despite the convenience of these services, they come with a lot of fine print.
What is buy now, pay later, and how exactly does it work? What are the risks and limitations? Are there other ways to access purchasing power?
Let’s break down the basics. With an understanding of your options, you can determine whether a buy now, pay later contract—or another payment plan—is right for you.
The Basics of Buy Now, Pay Later
A buy now, pay later (BNPL) contract is a short-term financing option (essentially, a loan) that lets shoppers break up a purchase into several interest-free payments, typically over a six-week period.
How does this type of loan differ from a credit card or bank loan?
When you apply for a credit card or bank loan, approval depends on your credit history and similar factors. You go through an application process that can take as long as several weeks for some loan types. But—when approved—you can spend your cash or credit line wherever and however you want.
Applying for a BNPL contract also depends on a credit check, but it’s a much faster application process. BNPL financing companies typically partner with retailers to offer you a loan option right at the store or when you check out online. This means your mini-loan is limited to the specific purchase at hand.
You can think of these different loans as a waterfall:
- Credit card (or personal loan) – Use it anywhere
- Store credit card – Use only at a single store (or single brand network)
- BNPL – Use once for a single purchase (usually, but not always, a single large item)
With credit cards and bank loans, financial institutions also earn money from the interest you pay on what you borrow (plus any applicable fees).
One of the major attractions of BNPL loans is that they generally offer $0 interest for a limited period. If you meet all your payment obligations before that deadline, you may only pay the retail price of your purchased item.
So, how do BNPL companies turn a profit? If you don’t make timely repayments, then interest (and possibly fees) will kick in, and there are enough borrowers who incur late fees and interest for extended payment periods to balance out those who pay on time and in full.
How Exactly Does Buy Now, Pay Later Work?
You might encounter a BNPL financing offer when you talk to a sales representative at a brick-and-mortar store or as a shopping cart option online.
The top four online BNPL providers you’re likely to encounter (as of June 2025) are:
- PayPal Pay in 4/Pay Later
- Affirm
- Afterpay
- Klarna
During checkout, you’re asked if you’d like to split your payments rather than pay the full amount now. Often, it’s a simple offer, such as four installment payments over six weeks. However, you may see a choice of repayment terms—as high as 24 months for larger purchases from some BNPL providers.
If you choose BNPL vs. paying the full price up front, you’re directed to a short, simple application that collects identification and financial information. The BNPL provider’s technology then runs a credit check (usually a soft credit check, but it could be a hard check for larger purchases).
If you’re approved, you’re then given clear directions on how and when to make your installment payments, along with a contract that details what happens if you miss or make late payments.
The Benefits of Buy Now, Pay Later
A need-it-now purchase without enough cash in your wallet often leads to some type of loan or financing arrangement. BNPL plans—which are growing in availability—have a serious edge over credit cards and personal loans in many respects:
- Simple application process
- Fast approval
- Most providers only run a soft credit check, which doesn’t impact your credit score
- No interest if you make your repayment deadline
The Drawbacks of Buy Now, Pay Later
Of course, BNPL plans aren’t without their drawbacks. Consider the cons of BNPL plans before you click through a contract agreement:
- Limited access based on creditworthiness, so not everyone is approved
- Difficulty returning the item or getting money back if a return is warranted
- BNPLs don’t currently help you build a positive credit history
- Automatic payment requirements can lead to overdrafts or declined charges
Further, if you end up with late or missing payments, cons include:
- Interest rates as high as 36% if you can’t repay the full amount by the original deadline
- High fees for late payments, missed payments, and other (sometimes hidden) charges
- Late payments reported to credit bureaus, which can hurt your credit score
In a May 2025 Bankrate survey, nearly 50 million U.S. adults reported having used BNPL and experiencing at least one problem with it. Top complaints included:
- Missing or making late payments (and getting hit with fees and/or interest)
- Regretting their purchase
- Difficulty returning and/or getting a refund on the purchase
Alternatives to BNPL
Fortunately, buy now, pay later isn’t the only choice available when you don’t have the full amount of cash in hand but need to make a critical purchase.
Consider these alternative options:
- Buy a lower-priced product – Check out resale options like Facebook Marketplace or Craigslist for used products, or swap out a wish-list item for something simpler that’ll still get the job done. The downside is that you may end up with a product that doesn’t last as long or work as efficiently.
- Borrow from family or friends – Do you have friends or relatives with extra funds? One way to bypass being declined for a loan based on a poor credit history is to keep it in the family. However, use caution with this route—while you could save on interest and avoid a credit check, you might end up putting a strain on your personal relationships.
- Lease to own – What if you could “get it now and pay as you go” instead of buy now, pay later? A lease-to-own agreement is a more adjustable and inclusive alternative that offers many of the same benefits as BNPL, like manageable payments, a quick application process, and immediate access to what you need.
When Is Lease-to-Own a Better Choice?
If you need it now and want more flexibility than either a full-price purchase or BNPL financing, lease-to-own is a budget-friendly option that gives you more control.
A lease-to-own agreement puts the must-have product in your hands immediately. Then, similar to BNPL, you make monthly payments on it. The difference with lease-to-own is in the first word—you start by leasing the item, not buying it. This means you are not:
- Locked into a long-term commitment
- On the hook for the full purchase price
- Taking on a loan
- Required to pass a credit check
Unlike BNPL, lease-to-own companies let you skip the financing, credit check, and full-cost responsibility. Instead, you lease the item and are able to decide each month whether to keep leasing it, buy it out, or return it.
Lease-to-own can be a better choice than BNPL based on your budget and circumstances, especially if you:
- Are turned down for BNPL financing due to your credit history (or lack thereof)
- Don’t qualify for traditional credit-based financing or have available credit
- Want more time and flexibility to pay
Lease-to-own can also be a brighter option based on exactly what you need and how long that need will last. For instance, consider lease-to-own if:
- You want to test out an item before making a final decision
- Your purchase falls outside typical BNPL limits
- You simply want a short-term lease rather than buying and keeping an item
Know Your Options Before You Buy or Lease
Buy now, pay later is one way to split up payments on a big or medium purchase, but it’s not your only option.
Lease-to-own is available with a growing network of retailers—online and in-store—making it easy to shop, lease, and take home what you need, when you need it. And with no credit check, your application can be approved in as little as five seconds.
Once you have the item in hand, it’s entirely up to you whether to continue to lease it, buy it out, or return it.
Prequalify to See How Katapult Can Help You
Katapult lease-purchase plans provide a simple and easy path from “need” to “own.” Our technology looks beyond credit scores to understand your journey and open up the purchasing power you need today.
Plus, there’s no credit check, no late fees, and no surprises. Prequalify for a Katapult plan now, and in minutes, you could be shopping for up to $3,500 of the essentials you need in-person, online, or with the Katapult app.
When you choose a lease-to-own plan with us, there’s no long-term obligation or requirement to buy the product in full—the choice is always yours. You can continue to lease month-to-month, buy the item outright, or return it at any time.
For convenient, flexible, and stress-free purchasing power, try Katapult.
Sources:
Bankrate. Survey: About half of buy now, pay later users have experienced issues like overspending and missing payments. https://www.bankrate.com/loans/personal-loans/buy-now-pay-later-survey/
CNN Business. Buy Now, Pay Later loans will factor in to Americans’ credit scores. https://www.cnn.com/2025/06/23/economy/fico-scores-buy-now-pay-later-bnpl
Experian. Pros and Cons of Buy Now, Pay Later. https://www.experian.com/blogs/ask-experian/pros-cons-of-buy-now-pay-later/
Federal Trade Commission Consumer Advice. Buy Now, Pay Later, Rent-to-Own, Lease-to-Own, and Layaway. https://consumer.ftc.gov/articles/buy-now-pay-later-rent-own-lease-own-and-layaway#understand
