5 Ways Buy-Now-Pay-Later Is Turning into Installment Loans

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Buy-now-pay-later (BNPL) ‘s handy consumer payment solution has transformed into installment loans for eCommerce buyers. This option allows people to pay for items over multiple payments instead of shelling out the total amount upfront.

This short-term financing is popular with a younger, married demographic. BNPL has benefits such as more accessible financing, soft credit checks, smaller down-payments, and interest-free installments. The downsides include overspending or failed payments from taking out too many installment loans.

Based on this feature’s success and the fact that companies look for more ways to satisfy customers during struggling economic periods, it seems likely that more companies will offer buy-now-pay-later options in the future.

1. Installment Loans Offer Easier Financing

Buy-now-pay-later plans are popular today because people can still qualify for them even if they have bad or zero credit. Approval eligibility can vary depending on the company. However, securing this installment financing is typically easier than applying for other forms of credit.

Many companies, like Afterpay, Klarna, and PayPal, offer a “pay in four” installment loan option. Instead of paying for your entire purchase upfront, this model lets you divide your purchase over four equal payments spread two weeks apart.

For instance, if your total bill is $300, you will pay $75 when you check out. Next, you will have your final three $75 payments debited from your credit or debit card or checking account every two weeks.

While you’ll need to make the first payment immediately, if you make the payments on time, you can continue using this feature. Then you will pay off your purchase in about six weeks. This feature is a good option for people with poor credit or who prefer to avoid using credit. It helps expand flexible purchasing options to a broader audience.

While a pay-in-four plan doesn’t usually charge interest, other BNPL plans can charge an annual percentage rate of up to 30%. Late fees range from $5 to $10 and are sometimes capped at 25% of the order value, depending on the company.

2. These Options Offer Soft Credit Checks

The good news is that if you prefer to spread your payments out with BNPL, this short-term financing option typically uses soft credit checks. So it won’t hurt your credit to click on that “pay in four” option at checkout. While you may see this soft check show up on your credit report, it won’t affect your credit or make your score visible to other lenders.

Remember that if a payment fails or you don’t make your payments, this can damage your credit score.

3. Affordable and Flexible Short-Term Financing

Buy-now-pay-later installment loans are attractive for many consumers since they give them more options.

Many big retailers such as Amazon, Walmart, Old Navy, Gap, Bed Bath & Beyond, and Pottery Barn partner with companies like Afterpay that offer BNPL services to help more consumers make purchases.

You can use Klarna to divide your payments into four at places like Foot Locker, Sephora, and Macy’s. In addition, PayPal offers “pay-in-four” through many partners, such as Target and Bed Bath & Beyond. PayPal has some of the best BNPL options with zero interest and no late fees.

You can shop at Target with Sezzle. Then you can keep your installment loan account activated if you don’t miss a payment. Zip is accepted anywhere that Visa is accepted and this is pretty much everywhere. Zip charges a $1 convenience fee on each transaction and payment. Depending on your state, the service will also charge you late fees.

Most BNPL offers don’t charge interest. But it’s a good idea to review the fine print before accepting the plan to ensure you won’t be charged interest. For example, if you use Affirm instead of PayPal, some stores that partner with the company might not charge interest. But others can charge up to 30% APR.

Most BNPLs are based on an interest-free payment plan that lets you spread out your payments over time. This is a great way to get flexible credit without adding interest to your debt.

4. Consumers Control When They Pay with an Installment Loan

The buy-now-pay-later options are simple, easy to understand, and put you in control of your finances by allowing you to control your cash flow. Services like PayPal and others even notify you when you have upcoming payments. These are typically due every two weeks after the initial payment is made at checkout.

So if your eCommerce store offers expensive items that customers hesitate to pay for all at once, these installment plans make it easier for customers to purchase from you. In short, they let consumers manage their money more on their terms.

5. Installment Loans Can Help Lower Credit Card Debt

With point-of-sale installment loans, more stores are teaming up with BNPL lenders like PayPal, Klarna, and Afterpay. This allows them to offer better customer service, make shopping easier, build customer loyalty, and increase conversion rates.

It’s a popular payday option for people who might otherwise not be able to afford the purchase or rely on credit card financing.

Because most places don’t charge interest, it’s an excellent alternative to traditional credit cards for many people. In addition, some companies don’t even charge late fees. This can save you money if you miss a payment. But you should try to make every payment on time. That’s because these services can close your account or keep you from getting short-term loans if you miss or fail to make too many payments.

With repayments scheduled on fixed dates over weeks or even months, BNPL doesn’t increase your credit card debt, makes it easier to pay off larger purchases, and can help consumers monitor their spending.

Final Thoughts

Consumers can use buy-now-pay-later installment loan features to enjoy more options when they buy products and services online.

BNPL short-term loans are widely used by younger demographics such as millennials and Gen Z, who might not have a strong credit history, avoid credit card debt, or appreciate the flexibility that short-term, interest-free financing offers.

As e-commerce continues to develop, it’s clear that businesses will continue to expand BNPL’s offers to make online purchasing options more flexible and accessible for consumers.