Buy Now Pay Later Apps: How They Work and What to Watch Out For
Quick Answer
How BNPL Works
At checkout, a BNPL service offers to split your purchase into a series of payments. The most common structure is "Pay in 4": four equal payments every two weeks, starting at purchase. The first payment is due at checkout. No interest is charged if all payments are made on time.
Some BNPL products offer longer-term financing (6, 12, or 24 months) with interest, functioning more like a personal loan.
Major BNPL services available in the U.S. include Afterpay, Klarna, Affirm, and PayPal Pay Later. Terms differ between services.
Key Terms to Understand Before Using BNPL
| Term | What It Means |
|---|---|
| Pay in 4 | Four equal payments every two weeks; typically 0% interest if on-time |
| Late fee | A fixed fee charged for each missed payment; varies by provider |
| Returned payment fee | Fee charged if a payment fails due to insufficient funds |
| Soft credit check | A credit inquiry that does not affect your credit score; used by some providers for initial approval |
| Hard credit check | A credit inquiry that appears on your credit report; used for longer-term financing products |
| Account suspension | Some providers suspend your ability to make new BNPL purchases if you have a missed payment |
Consumer Protections That Differ from Credit Cards
The CFPB's 2022 BNPL report identified several areas where consumer protections differ from credit cards:
Dispute rights: BNPL products are not uniformly covered by the Fair Credit Billing Act, which governs credit card disputes. Dispute processes vary by provider and are not standardized by federal law. Some providers have voluntary policies that resemble FCBA protections, but these are not legally required.
Refund coordination: When you return an item purchased with BNPL, the refund from the merchant and the pause on your BNPL payments may not align. You may continue making payments while waiting for the refund to post.
Credit reporting: Some BNPL providers report to credit bureaus; others do not. This means timely payments may not build your credit history, but late payments on some platforms may damage it.
Overdraft risk: BNPL payments are typically auto-debited from a linked bank account or debit card. If funds are insufficient, you may incur both a BNPL late fee and a bank overdraft fee.
BNPL and Multiple Simultaneous Obligations
Because BNPL approval is quick and minimum payments are low, buyers can accumulate multiple simultaneous BNPL payment schedules without a traditional credit check. The CFPB's research found that BNPL users were more likely to be financially stressed and more likely to have overdraft fees than non-BNPL users.
Each individual BNPL transaction may seem manageable, but the combined payment schedule across multiple transactions can exceed what a budget can support.
How to Dispute a BNPL Purchase
If you need to dispute a BNPL purchase (returned item, item not as described, non-delivery), contact both the merchant and the BNPL provider:
- Contact the merchant and request a refund or resolution as you would for any return
- Contact the BNPL provider and inform them of the dispute; ask whether payments can be paused pending resolution
- If the provider does not resolve the dispute, file a complaint with the CFPB at consumerfinance.gov/complaint
- If the purchase was made via a credit card linked to the BNPL account, you may have additional FCBA dispute rights through the card issuer