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‘Buy now, pay later’ services: Here’s how they work


Buy now, pay later services are popping up at more online checkouts, even in ads. The goal? To create a personalized payment plan.

Ted Rossman with CreditCards.com said this option is relatively easy to use.

“You don’t necessarily need a good credit score. Sometimes, you don’t need a credit score at all. So it’s more widely available and easier to qualify for than a credit card.”

While the purpose of the services is the same, each company operates differently.

Some offer multiple, interest-free payments over six weeks. Others charge interest but give customers more time to pay or offer lower rates than a credit card.

Think of them as micro-loans, Rossman said.

“Instead of giving you a $10,000 credit limit, it’s more like each individual purchase gets approved,” Rossman said.

To get approved, companies may run a soft credit check. Soft credit checks do not affect credit scores.

If customers pay on time, these payment plans can save money compared to a traditional credit card.

For example, Affirm’s partnership with Peloton. Instead of paying nearly $2,000 for an exercise bike all at once, or putting it on a credit card with 16% interest, customers can pay $49 dollars a month for 39 months with no money down and 0% APR financing.

But like all spending, Rossman said to know your limits.

“There’s always a temptation to buy stuff that we don’t necessarily have the money for now, but then we’ll have it in six weeks or six months, but what if you don’t?”

If customers do not pay their installments on time, there are consequences. For example, AfterPay, Sezzle and Klarna charge late fees. Affirm, however, does not. Companies may also report customers to the credit bureaus and ban further use of the service.

Before using any payment plan, make sure you read and understand the company’s terms and conditions.