Depending on your goals, finances and other factors, installment plan services can be a great way to finance large purchases, generally for a low cost. If possible, though, you may want to ensure you are using a service with interest, fees and repayment terms that align with your spending habits or budget and your money goals.
Online shoppers now have more options than before when it comes to paying for their purchases. For example, shoppers now have numerous alternative methods of financing large purchases, such as buy now, pay later installment plan services, which have become more and more common.
These types of installment plan services are designed to work similarly to credit cards, allowing customers to pay off purchases over time. Some of these services will charge a fixed fee in place of interest charges, while others may charge an interest rate that is much lower than the typical credit card APR or no fees at all.
If there are large purchases that you want to finance but want to avoid paying significant fees or interest charges, a BNPL plan may be one way to reduce the costs of financing. And because the repayment terms and fees vary, sometimes significantly, between these services, you may be able to find one that aligns with your spending and needs. But before you get started, here’s what you should know about BNPL installment plan services.
What is a BNPL installment plan?
From traditional loans to store financing, there are all kinds of alternative ways to pay for a large purchase. One option that’s been increasing in popularity is the BNPL installment plan structure. From card issuer-offered solutions like American Express Pay It Plan It to third-party services like Afterpay, there is a bevy of payment plans designed to split up your purchases over time.
With a BNPL installment plan like these, you’ll typically pay off your purchase in fixed, equal amounts over a set repayment period. Some services limit you to one repayment term — such as four payments over six weeks with Afterpay — while others allow you to pick the term that works best. For example, Pay It Plan It allows eligible users to choose between three different repayment periods designed to offer options for every budget.
While some BNPL installment plans charge a set interest rate, most are designed to sidestep interest with a small fixed fee. Whether this fee falls on the consumer or the merchant varies based on the payment program.
Popular installment plan services
There is no shortage of BNPL installment plan services out there. Each offers its own portfolio of repayment options, rates, fees and effects to your credit score, so you should carefully consider each of these factors before deciding if the plan fits into your budget.
Here’s a quick look at some of the most popular BNPL installment plan services currently on the market.
|Payment service||Repayment terms||Interest rates & fees||Credit score effect|
|Affirm||Financing periods from 3-39 months|
|Afterpay||4 equal installments over 6 weeks||No effect to credit score|
|Klarna||Varying by merchant:|
|QuadPay||4 equal installments over 6 weeks||No effect to credit score|
|Sezzle||4 equal installments over 6 weeks|
|Bread||Varying by merchant:|
|Splitit||Equal installments over 3, 6, 12 or 24-month repayment periods||No effect to your credit score|
|American Express Pay It Plan It||Combine up to 10 purchases to finance over a set repayment term (3-24 months)|
The most important thing you can do before opting for one of these installment plan solutions is to add up the total cost of your purchase. While some of these services — such as Afterpay and QuadPay — don’t charge you a fee and can save you money over time, others can be costlier than putting your purchase on a credit card.
Choosing the best service for you
So how do you navigate these online payment solutions and decide which is best for you?
In many cases, you’re limited based on the retailer you purchase from. Most third-party services partner with select merchants to add their payment method at checkout, and you’ll have to stick with whichever option is available to you.
This is not true in all cases, however. QuadPay and Klarna allow users to take advantage of a payment plan that can be used with any retailer via a virtual card number. Additionally, Affirm offers a virtual card to select users.
|Service||Partner retailers||Sample participating merchants|
|American Express Pay It Plan It||None|
Since American Express Pay It Plan It is tied to your credit card, qualifying cardholders can take advantage of any eligible purchases from merchants that accept Amex.
How buy now, pay later services can affect your credit score
Many BNPL installment payment services are designed to provide options to most shoppers, and that includes those with bad credit. Such services won’t perform a credit check to approve you for a plan, and the plan won’t affect your credit score. However, some plans require a soft or hard credit pull for approval, and your payments, or the installment loan itself, might be reported to the credit bureaus.
In turn, it’s essential to make all your payments on time to avoid any negative marks on your credit. Plus, if you are inconsistent about paying back what you owe, the service is unlikely to approve you for another payment plan in the future. BNPL services can be a good option for those big-ticket items you need to pay over time, but they should not be used to purchase items you cannot afford to pay off.
Tips for maximizing installment plan services
Once you sign up for BNPL installment-plan financing, keep these best practices in mind to get the most out of the payment solution.
- Don’t take on too many plans at once. While you may have the option to finance numerous things with different plans, be careful. Taking on multiple smaller payments can make it difficult to understand how much you are actually spending in total each month, and you don’t want to be stuck with more than you can pay back.
- Know your terms and conditions. Before you accept an offer, read the fine print. While you may think you’re getting a good deal, be sure you understand any penalties, such as account closure or late fees, that come from not meeting the set terms.
- Always make payments on time. Any late fees you may incur from paying for your installment plan after the due date can be steep. Plus, since some services report payment information to credit bureaus, those late payments can lower your credit score.
- Calculate your interest and fees. If your payment plan charges interest or fees, make sure to do the math and find out if you are actually saving money over another payment method. You actually might save more by using a credit card — especially if you have a credit card with a 0 percent intro APR.
- Consider making your payments with a credit card. You may also want to make your installment payments with a rewards credit card if the service allows it, which may earn you points, miles or cash back on the money you’re spending to pay back the loan. Plus, you’ll add a bit more flexibility to your payments this way.
- Set up a payment calendar. You may also want to keep your own payment calendar, even if you have automatic payments or notifications set up for when the payments are due. You don’t want to miss a payment if something goes wrong, and a payment calendar will help to keep you on track.
Depending on your goals, finances and other factors, BNPL installment plan services can be a great way to finance large purchases, generally for a low cost. If possible, though, you may want to ensure you are using a service with interest, fees and repayment terms that align with your spending habits or budget and your money goals. While it can be tempting to jump at an offer to pay over time, it’s important to know it’s a good deal before you commit to the plan.