BNPL and the future of credit

7 minutes read | Posted on: Apr 04, 2023

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By: Smaya Anand

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Buy now, pay later is rapidly gaining in popularity. It is a new type of credit offering that allows consumers to split purchases in installments. With so many BNPL products out there, you may be wondering — how they work, what the advantages and disadvantages of BNPL are, the best BNPL apps, and if there are apps to pay bills in 4 payments. Don’t worry, we have got you covered! Below, you will find answers to most commonly asked questions on everything to do with BNPL.

What is BNPL?

BNPL stands for Buy Now, Pay Later. It’s a type of loan that allows customers to pay for their purchases in installments that are split evenly over a number of weeks. Each service offers different types of repayment plans, generally interest-free. Over the pandemic years, BNPL has taken off as a method of paying for more expensive products that might not be affordable otherwise.

How does BNPL work?

The most common method is Pay in 4. For example, if you were to buy a smart TV for $1000, you could select an option to pay with BNPL at checkout. If you are approved, you would pay $250 up-front and then $250 every two weeks, or every month, until you paid the full $1000. With BNPLs, getting approved is relatively easy, as there is no hard credit check that can negatively impact your credit score.

BNPL process

How do BNPL companies make money?

With BNPLs, there is usually no interest on payments. And while there may be late fees, that isn’t quite enough to make huge profits. Instead, most BNPLs, like credit cards, tax the merchant instead of the consumer, although the tax is usually higher than that of credit cards, being 4-9%. The reason that merchants are okay with that tax is that they’re depending on BNPL to make their products more accessible, so that more people will buy them. The profit they make from the expansion of their audience is enough to offset the cut given to the BNPL company.

What are the advantages of BNPL?

  • No hard credit check: When you open a credit card or ask for a loan, it can harm your credit score because of the hard credit check that lenders will perform. But BNPLs will only use a soft credit check, which won’t change your score.
  • High credit not necessarily needed: This is great for those with short or no credit history, or those with bad history. It makes getting loans easier.
  • Makes large purchases more accessible: In the modern world, some expensive items are also items that are necessary. In order to have a job, you’ll likely need a smartphone and high-speed internet, which are all expensive items. It can make it much easier to afford things like that when the purchase is split into installments.
  • No interest: Unlike most loans and credit cards, you don’t have to worry about paying more for a product just because you took some more time to pay. BNPLs almost never have interest on their payments.

What are the disadvantages of BNPL?

  • Overspending: Because the payments are split up, it may seem like you’re paying less than you actually are. That can encourage customers to spend more than they have, overextending their finances.
  • Usually not reported to credit bureaus: While BNPLs can be very helpful for those who can’t get credit cards without interest, because their credit score isn’t high enough, it also doesn’t help your credit score. Your on-time payments will not be reported to the three main credit bureaus.
  • Late fees: While BNPLs don’t have interest, many do have late fees. Be careful of those, as they’re small but they can add up.

What is the Buy Now Pay Later Market like?

Buy Now Pay Later started out in Australia and Scandinavia, coming to the US around 2015. It slowly gained popularity, with retailers incorporating it onto their online shopping websites. It was very popular for young people, who were likely to have low credit due to not having much history, and who were more likely to use online shopping. Then, when the pandemic hit, the BNPL industry started to grow even more, because online shopping became less of a preference and more of a necessity. Also, with the financial hardship the pandemic caused, BNPL became a useful tool for people who wanted to avoid spending too much money at once. BNPL will likely keep growing in the future as more awareness about it is spread. It’s forecasted that by 2030, it will be worth almost $40 billion, with a compound annual growth rate (CAGR) of 26% from 2022-2030.

What websites let you buy now, pay later?


There are several BNPL services available. Some of the most popular are Afterpay, PayPal, Klarna, Zip (formerly QuadPay), Sezzle, and Zebit. Each one has its own benefits and downsides. Some have late fees, for example, while others don’t; some are more widely accepted as payment methods; some offer multiple types of plan. One thing that they all have in common, though, is that their scope is limited to shopping, online or in-store.

Is there a buy now, pay later for bills?

As mentioned, the majority of BNPLs are used for shopping, mostly online. However, Neon For Life is a great option if you want to be able to easily pay bills using Buy Now Pay Later. It uses its own credit decisioning process that uses more data than the typical FICO score, making it accessible for those with no, thin-file, or bad credit. It’s also incredibly convenient, because it pays your bills from one platform, and puts them on autopay, so you have to spend much less of your time paying bills. And being able to pay bills in installments rather than all at once can help make them more manageable for those struggling financially.


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