What is Buy Now, Pay Later?

BNPL services are unique from other payment methods because of their speed, affordability, and convenience. They enable customers to make an online or in-store purchase while only paying a fraction of the item’s price, with the BNPL provider covering the full cost at checkout. 

After checking out, the customer pays off the remainder by making a series of installments, usually on a monthly or biweekly basis. BNPL plans are short-term, do not provide revolving credit, and charge zero or minimal interest as long as customers make their payments on time. Learn more about how BNPL with Zip works. 

From credit impact to eligibility requirements, let’s walk through a brief overview of the various aspects of a BNPL plan. From there, we’ll dive into discussing each of these features in greater detail.

• Credit Impact: Rarely reported to credit bureaus

• Credit Building: Generally does not impact credit score or help build credit

• Fees & Interest: Sometimes interest-free with short-term plans; may charge a smaller installment fees.

• Penalties: Few fees overall, but missed payments may incur a late fee

• Payment Flexibility: Limited to specific, participating retailers with fixed installment plans

• Security & Fraud Protection: Varies by provider, but typically offer only basic security features

• Eligibility Requirements: Typically requires only a soft credit check and available to a wide range of consumers regardless of credit score

Credit impact and credit-building

BNPL services typically don’t report either on-time or late payments to the three major credit bureaus: Experian, TransUnion, and Equifax. While BNPL services offer a convenient way to pay for a purchase in installments, they cannot help you build credit over time and have neither a positive or negative impact on your credit score.

Fees and interest

BNPL plans usually offer short-term, interest-free repayment plans that are completed within weeks or months. If no interest accumulates during this period, costs stay low for the customer, who only pays the item’s cost plus smaller installment fees.  

Penalties

BNPL services typically charge very few fees, such as an origination fee for using the service. Missed payments can also lead to late fees, so it’s important to stick to your installment plan. Read the terms and conditions of your user agreement to be aware of any charges that may apply and understand your responsibilities for repayment.

Payment flexibility

BNPL plans can only be used with specific, participating retailers and require customers to follow specific plans where they repay the balance of a purchase over a pre-determined period. The upside is that sometimes BNPL plans are interest-free — and thanks to their fixed-term repayment structures – can help prevent shoppers from accidentally racking up debt.

Security and fraud protection

BNPL services provide varying levels of fraud protection. For instance, Zip uses various security measures, including facial recognition for identity verification to prevent fraudulent transactions. Personal information used on the Zip website or app is encrypted to prevent sensitive personal data from being leaked or compromised.

Eligibility requirements

BNPL plans are available to a wide range of consumers. BNPL services usually run a soft credit check that delivers an instant decision without hurting your FICO score. 

Zip has a few specific eligibility requirements. You must be a US resident at least 18 years old with a valid mobile number and US-based mailing address. You must also have either a credit or debit card for purchase. Zip will determine your eligibility before the completion of each Zip purchase.

Let’s review some potential advantages and considerations for buy now, pay later plans:

Pros of BNPL

• May offer interest-free installment plans, depending on the provider

• Ideal for short-term payments you can complete in a few weeks or months 

• Convenient to use on your phone or computer

• Provides clear, transparent terms and conditions outlined in service agreement 

• Fast approval process that only takes a few minutes at the time of checkout

• Most BNPL services perform a soft credit check, which doesn’t affect your credit score

Cons of BNPL

• Does not offer the opportunity to build credit

• Limited flexibility when it comes to payment frequency, as repayment periods are usually defined with set dates as per terms and conditions of your agreement

• Potential late fees for missed payments

You can avoid these drawbacks by choosing a BNPL service that offers the right features. For example, Zip lets you change your payment date¹ up to 24 hours before your next installment is due. And with text and email reminders, it’s easy to stay on top of your payment schedule and prevent late fees.

Thinking strategically about your financial goals can help you get the best value while paying the lowest cost over time. For example, BNPL lets you make short-term installment plans, which can be helpful in paying for one-time expenses, as well as more typical, everyday purchases. 

BNPL plans can typically be useful to consumers who want to:

• Pay off a purchase with a handful of installments, without a long-term repayment plan 

• Avoid a hard credit check, which can impact your FICO score 

• Have a fast approval process and decision at checkout

• Opt for a convenient way to help manage unexpected bills and make everyday purchases, like clothing or beauty and health products 

Download the app to start using Zip! 

Buy now, pay later at thousands of popular brands and retailers, including online and in-store!² 

Download the Zip app for Android or iOS.

Or install the Zip Chrome extension.

Why might consumers consider BNPL as a payment option?

BNPL services provide convenience and flexibility to shop in-store or online at thousands of brands. They’re also fast and easy to apply for, typically based on soft credit checks that provide instant decisions without impacting your FICO score. Plus, many BNPL services offer interest-free payment plans.

Do BNPL cards affect credit score?

Most BNPL providers don’t report to credit bureaus, such as TransUnion, unless you miss a payment. If a late payment is reported to any of the credit bureaus, your credit score will decrease, making it more difficult to qualify for loans and other financial products. Making timely payments is an essential part of maintaining your creditworthiness.