Personal Loans

Personal Loans vs. Buy Now, Pay Later: What’s the Difference?

Learn how buy now, pay later works, its potential benefits and drawbacks, and the difference between it and personal loans.
A woman holds a credit card while using her laptop to shop online
By Kevin Payne
Posted on: April 14th, 2022

Buy now, pay later (BNPL) programs have been around for decades but have recently gained popularity, especially during the pandemic when more consumers turned to online shopping.

According to a survey by C+R Research, 51% of consumers say they used buy now, pay later services during the pandemic. With buy now, pay later, you can make purchases online and receive them immediately while worrying about paying later through a series of installment payments.

While buy now, pay later apps offer financing similar to a personal loan, the lending options aren’t exactly alike. BNPL provides more convenience, typically not requiring a credit check for approval, and is often available at the point of sale. However, they are geared more towards smaller purchases, so buy now, pay later isn’t ideal if you want to finance a wedding or home improvement project.

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What Is Buy Now, Pay Later?

Buy now, pay later is a type of installment loan that allows you to make immediate purchases and pay for them at a later date. Typically, buy now, pay later involves paying back the purchase over several installments, sometimes with interest.

Typically, you make the first BNPL payment at the time of purchase, and then you can make weekly, bi-weekly, or monthly installment payments until your payment is paid in full.

Payment amounts and frequency depend on the purchase amount and options from the BNPL payment company. Generally, you can see payment amounts before you complete the purchase. Often, BNLP apps give you several payment options to choose from.

As an example, let’s say you were in the market for a new TV. Target.com offers a 65″ Samsung TV for $593.99 (including taxes). At checkout, you’re offered the option to pay using Affirm. If you choose that option, you’ll see three different BNPL options to choose from — three months, six months, and 12 months. It also shows you estimated payments based on the three options:

  • 3 months: $204.78 / month (20.45% APR)
  • 6 months: $104.98 / month (20.41% APR)
  • 12 months: $55.12 / month (20.36% APR)

Unfortunately, unless you move forward with the purchase, you can’t see specific payment and interest rate details. Interest rates range from 10% to 30%, and using Affirm is subject to a credit check and approval and may require a down payment.

How do you get it?

Retailers have offered consumers buy now, pay later financing in the past, but more recently, several lenders have begun to offer buy now, pay later apps that help consumers gain access to funds at the point of sale. Popular BNPL apps include:

  • Affirm
  • Afterpay
  • FuturePay
  • Klarna
  • PayPal (Pay in 4)
  • Perpay
  • Sezzle
  • Splitit
  • Uplift
  • Zebit
  • Zip (formerly Quadpay)

Whether you are shopping online at retailers like Walmart or Target or booking a vacation package through Expedia, you can use buy now, pay later to fund your purchases when you make them.

Most major online retailers offer some form of buy now, pay later payment option. You can choose from multiple options in some cases, but many retailers form partnerships with specific BNPL lenders.

Buy now, pay later isn’t just for large retailers. Thousands of online retailers and other small businesses partner with buy now, pay later apps to offer financing. If you prefer a specific BNPL app, you can usually search the app for retail partners or even shop directly through the app. Some retailers offer buy now, pay later options in store too. Even gas station chains, like Chevron, now allow customers to pay for gas in installments.

Just because a retailer offers BNPL doesn’t mean that it’s available for every purchase. Many retailers limit what products or services they allow customers to use buy now, pay later as a payment option. Amazon, for example, only allows it on select items. If you don’t see monthly payments as an option on the product page or during checkout.

Who is it for?

Almost anyone can use buy now, pay later for purchases. In most cases, you must only meet the following minimum requirements:

  • Be at least 18 years old
  • Have a mobile phone number
  • Have a debit card, credit card, or bank account

Buy now, pay later is geared towards shoppers who want access to merchandise now, but may not have enough money to cover the charge now. It’s also a financing option for individuals with poor credit since there’s typically no hard credit inquiry with BNPL.

Pros and Cons of Buy Now, Pay Later

Like other lending options, buy now, pay later has benefits and drawbacks to consider. Examine the pros and cons below to help gauge whether buy now, pay later is a viable option for upcoming purchases.

Pros

  • Doesn’t require great credit: Most BNPL apps don’t run a credit check or only perform a soft credit inquiry, which won’t negatively affect your credit score.
  • Interest-free payment: Many buy now, pay later lenders don’t charge interest on installment payments.
  • Payment options: You may have options on how long you can stretch out payments with buy now, pay later. Affirm loans typically last three, six, or 12 months but can extend as long as 48 months for larger loans.
  • Convenience: Buy now, pay later allows you to make purchases now that you may not be able to make otherwise.
  • Availability: You can use a buy now, pay later apps at thousands of retailers across the country.

Cons

  • Fees: Many buy now, pay later apps charge payment fees to use the service. You could also end up paying late fees if you miss a payment.
  • Down payment: BNPL apps may still require you to make a payment during your initial purchase.
  • Could hurt your credit: Most BNPL apps don’t report on-time payments to credit bureaus but report late payments, which could damage your credit.
  • High-interest rates: If you end up with an interest rate higher than 0%, you could end up paying a lot in interest fees. Your interest rate could be as high as 30% in some cases.
  • Too convenient: Convenience is great, but it can also cause you to overspend on purchases you wouldn’t typically make.

When Does a Personal Loan Make More Sense?

For many consumers, a personal loan makes more sense than other financing options like buy now, pay later. It might make more sense to use a personal loan:

When you want to build credit

If your goal is to not only fund a purchase or larger project but also to build credit, a personal loan makes more sense. Lenders report loan payments to the credit card bureaus. Payment history is one of the most important factors in determining credit scores. As long as you can make payments on time, you can boost your credit with a personal loan.

When you need money for larger projects or goals

While buy now, pay later may work if you want to buy a new cell phone, laptop, or sneakers, it’s usually not an option if you want to fund larger purchases. Maybe you want to fund your next family vacation or build an addition to your house. A personal loan can provide the necessary funds to make those dreams happen.

When you need lower payments

Many buy now, pay later plans split payments into four installments, leaving you making large payments each month or week. Personal loans typically offer longer loan terms, which will lower your monthly payments to a manageable amount.

When Does Buy Now, Pay Later Make More Sense?

There are risks to using buy now and pay later, but it might be a good choice in certain situations. It could make sense to use buy now, pay later:

When you need access to funds immediately

Thousands of retailers and businesses let you make purchases using buy now, pay later at the point of sale. Whether you shop in person or online, you can make qualifying purchases immediately, often for a small portion of the total purchase price.

When you’re credit isn’t good enough to qualify for a loan

Many lenders require good to excellent credit to qualify for a personal loan or a lower interest rate. If your credit isn’t up to par, buy now, pay later gives you financing when you need it, often without a credit check.

When you can qualify for 0% financing

Depending on the buy now, pay later app, you could qualify for 0% interest on purchases. You could still face fees, but you won’t assess any interest charges over the payment period.

When you only need a small loan

The minimum you can borrow from most lenders for a personal loan is $1,000. If you only need cash for purchases below $1,000, buy now, pay later is a better choice.

Which Is Right for Me?

Choosing between a personal loan and buy now, pay later depends on your financial situation and goals.

Buy now, pay later may be right for you if:

  • You need money for a small purchase
  • You qualify for 0% interest
  • You have the means to make on-time payments

A personal loan may be right for you if:

  • You need longer than a year to pay off a purchase
  • You have good to excellent credit
  • You want a lower interest rate

Before choosing an option, ask yourself the following questions:

  • Would I still make this purchase if I had to pay in full at the time of purchase?
  • Which option fits my financial needs better?
  • Which payment option will probably give me a lower interest rate?
  • Am I trying to build my credit?
  • How much money do I need to borrow?
  • How long will I need to pay off an installment loan?

Many lenders and buy now, pay later apps allow you to prequalify or check rates without affecting your credit. Find out what you qualify for to help you make an informed decision.

Frequently Asked Questions (FAQs)

Is there buy now, pay later on Amazon?

Amazon allows you to pay monthly installments on select purchases. Buy now, pay later is only available for purchases where monthly payments are mentioned on the product page or during checkout.

What retailers offer buy now, pay later?

Thousands of retailers allow you to make purchases using buy now, pay later, including Walmart, Target, Best Buy, Costco, Amazon, Gap, Old Navy, Macy’s, Petco, and many more.

What are buy now, pay later apps?

Buy now, pay later apps are lending companies that offer consumers the ability to make purchases at select retailers at the point of sale and make installment payments over a set time.

Bottom Line

If you have the means to pay for purchases now, ultimately, this is the best option. There’s no interest or late fees to worry about and no payments to make in the future.

If you need access to financing, though, a personal loan or buy now, pay later can be good options. Try to only use these options when necessary, or you have a clear plan to pay them off. Keep good records of your purchases and loan and payment details to stay on track to pay them off responsibly.

Reserve buy now, pay later for smaller purchases, and personal loans to fund larger projects or build your credit.