Lately, I’ve been getting a lot of questions about Buy Now Pay Later (BNPL) accounts—not just from industry professionals, but from friends and clients too. So, I put together this quick guide to help break it all down in plain, simple terms.

Here’s what you should know.

What is Buy Now, Pay Later?

Buy Now Pay Later is a newer type of financing that lets you make a purchase and receive your items right away, but pay them off over time in smaller installments. It’s different from credit cards and old-fashioned layaway.

BNPL became especially popular over the past few years as credit card interest rates and balances increased. Short-term BNPL options (like Klarna, AfterPay, Zip, or Sezzle) usually spread the cost out over 6 to 10 weeks. Others, like Affirm, offer longer terms—up to 24 months.

How is it different from credit cards or layaway?

If you remember layaway from back in the day, you had to pay the item off before you could take it home. BNPL is the opposite—you get the item now and pay over time. It’s convenient and gives that instant gratification.

Compared to credit cards—which currently carry an average interest rate of around 24%—many BNPL plans don’t charge interest, especially the common “pay-in-four” options. But some longer-term plans can have high interest rates, up to 36% APR depending on your credit, the loan term, and the company.

This is why it’s important to read the terms closely. Even though it feels easy and low-risk, you could end up paying a lot more than expected.

How does BNPL affect your credit?

This is a big one. Most BNPL providers don’t report to the credit bureaus—at least not yet. That means you could take on a significant amount of debt, and it wouldn’t show up on your credit report.

One exception is longer-term plans like Affirm, which sometimes report to Experian. But short-term options like Klarna, Zip, and Afterpay usually don’t report at all.

According to recent data, nearly 130 million people used BNPL in the past year, and most of that debt didn’t show up on credit reports. The CFPB also found that the average BNPL user takes out more than nine of these loans per year, and over half of users have multiple loans out at once.

This has become especially common among borrowers with lower credit scores—those who are often denied traditional loans or credit cards.

How can BNPL affect buying a home?

Even though most BNPL payments don’t show up on a credit report, they still show up on bank statements—and that can be a big deal when applying for a mortgage.

Loan officers are now running into situations where a client’s budget looks good on paper, but surprise BNPL payments start popping up on statements. These hidden debts can throw off someone’s debt-to-income ratio and impact their loan approval or buying power.

There’s also a risk with BNPL accounts that do report. If a payment is missed—even by accident—it could show up as a late payment, which could delay or even prevent a mortgage from closing. Some BNPL companies say they don’t charge late fees, which can make it seem like it’s okay to miss a payment, but it’s not. Late is late—and it still matters when it comes to home loans.

What can you do?

At the end of the day, it’s really important to understand the kind of debt you’re taking on, keep track of your monthly spending, and know what’s being reported to your credit report.

There’s a lot more to say about Buy Now Pay Later—both good and bad—but I’ll leave it there for now. Hopefully this gave you a better understanding of how these accounts work, and how they might impact your finances.

And if you ever have more questions, don’t hesitate to ask.

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