Understanding Buy Now, Pay Later Services and Their Value To Consumers

Buy now, pay later applications moved from the outskirts of payment options to mainstream purchasing options relatively quickly. Less than 10 years ago, the acronym BNPL likely struck confusion on consumers' faces, but now, with large retail chains accepting the payment option, it is becoming common knowledge.

BNPL services have advantages for the consumer and the business. For the customer, the services offer a fair, low payment, and low-interest method to pay for purchases over time. Retailers love the service option because it eliminates costly and complicated credit card services.

Despite the many advantages of using such a service over other credit options, consumers may find the selection of BNPL services too vast and confusing. With more than 170 companies currently, new BNPL services continue to crop up every month. When selecting a service for your purchase, it would be best for you to choose from a list of established companies.

Finding the Best of the Best

While there are many BNPL services, only a few have a proven track record of customer and retailer satisfaction. The best BNPL companies typically narrow down to a list of five:

1. Affirm

Affirm is the top tier in the BNPL environment. With purchase limits maxing out at $17,500 for qualified shoppers, a soft credit check, and no or simple interest, the service provider offers the most value to consumers.

2. Afterpay

Afterpay is an excellent BNPL option for students or those with low credit scores. Utilizing smart credit limits, the company ensures affordability.

While many retailers prefer Afterpay, some consumers might not like the four-payment structure of the BNPL app. Payments occur every two weeks, meaning consumers do not have the same flexibility as they receive with Affirm. Additionally, Afterpay is only eligible on purchases of $100 or more.

3. Klarna

Klarna is quickly establishing itself as one of the top BNPL options. While it too provides an option for four equal payments, users can also receive financing for larger purchases, extending the four-payment model from six to 36 months. However, if you choose more extended financing options, Klarna will charge interest, but the rate is still better than other credit card options.

4. PayPal

PayPal is a trusted name in the financial industry. The company now offers a BNPL option. However, like Afterpay, consumers are limited to the four-payment structure.

PayPal is a decent option for smaller purchases, with limits ranging from $30 to $1,500. While good for small exchanges, every purchase requires approval. Additionally, it is not available in all 50 states.

5. Sezzle

Sezzle does not offer the most purchasing power for a BNPL service, restricted to $750 or less, but it does offer flexibility. While the original breakdown is for four payments over six weeks, the company does allow consumers to extend the payments by up to two weeks. The first extension is free, but all later extensions are $5.

Evaluating Usefulness

Should you use a BNPL option? There is no straightforward answer. However, you should evaluate BNPL services like any other credit card opportunity.

While these services tend to have better terms than some credit cards, they can also have steep penalties. For instance, Afterpay charges 25% of your original order amount if a payment is late.

As with any financial decision, you need to weigh the options and choose what is best monetarily in the moment and the long run. People run into problems when they make purchasing decisions on a whim instead of using reasoning and logic.

Would you ever use a BNPL service? If so, when and for what? Comment below.