Buy Now, Pay Later (BNPL)
A short-term financing option that lets consumers split a purchase into smaller installment payments, often interest-free.
What is BNPL?
Buy Now, Pay Later (BNPL) is a type of short-term consumer financing that allows shoppers to split a purchase into several equal installments — typically 4 payments over 6 weeks (the 'pay-in-4' model) — often with zero interest if paid on time. Retailers pay BNPL providers a merchant fee (typically 2–8%) in exchange for increased conversion and average order values. Leading providers include Afterpay, Klarna, Affirm, and PayPal Pay Later. BNPL has grown rapidly as an alternative to credit cards, particularly among younger consumers. Risks include encouraging overspending, late fees on missed payments, and the fact that many BNPL providers do not report to credit bureaus (meaning on-time payments don't build credit history). The CFPB has moved to regulate BNPL products as credit cards.
Example
A shopper buys $200 of clothing through Afterpay. Rather than paying $200 upfront or putting it on a credit card, they pay $50 now and $50 every 2 weeks for 6 weeks — no interest if all payments are made on time. The retailer pays Afterpay a 4–6% merchant fee. If the shopper misses a payment, they incur late fees but Afterpay typically freezes further purchases rather than charging compounding interest.
Source: Consumer Financial Protection Bureau — Buy Now, Pay Later