A comparison of the top ‘buy now, pay later’ services — and what to watch out for

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Paying your credit card balances in full every month is one of the key recommendations here at TPG, not just for succeeding in travel rewards but also for smart personal finance.

However, there may be occasions when you need to make payments over time for larger purchases and don’t want to pay high interest rates for the ability to do so. Enter buy now, pay later, or BNPL, services.

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A comparison of buy now, pay later services

Most of the BNPL services operate similarly. They do a soft credit check to qualify you and determine your spending limit, offer no interest fees and require you to make the first payment with the purchase. Then you’ll usually have three remaining payments, one every two weeks. You can typically get instant approval at checkout. And some services offer a virtual card that you can add to your phone’s digital wallet to pay in-store.

With many BNPL services available, it can be difficult to distinguish between them and decide which one to use. The notable differences between services include purchase limits, whether or not fees are charged for late payments and if you can pay in monthly installments (but you’ll often have to pay interest on this option). We took a look at Affirm, Afterpay, Klarna and PayPal Credit, the top four services according to a study by C+R Research.

(Photo courtesy of PayPal)

Affirm

How it works: “Pay in 4” by making four payments, one every two weeks. Or choose a plan with monthly installments. You can pay anywhere, even in-store, using a one-time-use virtual card.
Repayment methods: Bank account, debit card, credit card (but only for some purchases), check payments by mail.
Purchase limit: Up to $17,500.
Credit check: Soft. Payment history, including delinquent payments, may be reported to Experian.
Interest: No interest for the Pay in 4 plan; 0%-30% for the monthly payments plan.
Late fees: None.

Afterpay

How it works: Make the first payment with purchase, then three additional payments over six weeks.
Repayment methods: Bank account, debit card, credit card.
Purchase limit: Spending limits begin at around $500 and increase gradually over time.
Credit check: Soft.
Interest: None.
Late fees: Capped at 25% of the purchase price.

Klarna

How it works: “Pay in 4” with four interest-free payments, paid every two weeks. Additional options include a no-interest “Pay in 30 days” plan and a monthly plan with flexible financing. Shop online and pay with the Klarna app. To pay in-store, you can create a one-time-use card and add it to your phone’s digital wallet.
Repayment methods: Bank account, debit card, credit card.
Purchase limit: No predefined spending limit. An automated approval decision is made with every purchase.
Credit check: Soft for the Pay in 4 option. Hard for the monthly financing option.
Interest: None.
Late fees: For the Pay in 4 option, up to $7 may be charged for late payments after 10 days (not to exceed 25% of the installment payment amount).

PayPal Credit

How it works: Use the “Pay in 4” offering by making the first payment to complete the purchase on approval, then three remaining payments, one every two weeks. Or go with the newer “Pay Monthly” plan, where the cost is broken into monthly payments over a 6- to 24-month period, with the first payment due one month after purchase.
Repayment methods: Bank account, debit card, credit card (your PayPal balance can’t be used for repayments).
Purchase limit: $30-$1,500 for Pay in 4; $199-$10,000 for Pay Monthly.
Credit check: Soft for Pay in 4; Pay Monthly does a soft check for prequalification and a hard inquiry when a customer accepts the loan and moves forward with financing options.
Interest: None for Pay in 4; 0%-29.99% for Pay Monthly.
Late fees: None.

Should you use buy now, pay later? 

The simplicity of paying off a purchase in four payments and not paying any interest charges is appealing. While numerous BNPL services are currently available, they’ll face heavy competition once Apple Pay Later launches later this year. 

(Image courtesy of Apple)

If you’re looking to maximize your points and miles earning, BNPL is not ideal. Though many services allow you to link a credit card for repayment, you’ll lose out on any category bonuses you may have received from shopping directly with the merchant.

In addition, using one form of debt to pay another form of debt isn’t advised, especially if you’re not able to pay off the charge on your credit card when the bill is due.

Can I use my Capital One card for buy now, pay later?

If you decide to link a credit card for repayment, keep in mind that you won’t be able to use any Capital One credit cards as the bank banned the use of those cards for buy now, pay later transactions. However, Capital One debit cards and checking counts can be linked.

Related: Are consumers choosing ‘buy now, pay later’ options over credit card rewards?

Bottom line

For larger purchases that you’d like to pay off over time but would still like to earn rewards, consider credit cards with 0% introductory annual percentage rates and credit card services such as Chase’s My Chase Plan and Amex’s Pay It® Plan It® (no enrollment required for the Amex feature), which offer installment plans with fixed monthly fees and no interest charges.

No matter which BNPL service or credit card offering you decide to use, responsible spending should remain the goal.

Featured photo by martin-dm/Getty Images.

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