Looking to furnish your home, but concerned about overextending your finances? Responsible consumers are choosing more affordable purchase options such as Buy Now Pay Later (BNPL), which typically offers interest free “loans” over a six week period with no additional surcharges. What it costs is what you pay – and you can enjoy your purchases immediately!

What is BNPL?

Buy Now Pay Later is a consumer loan product offered by various platforms which allows consumers to buy and receive purchases today but pay over a period of time, usually with zero fees. Simply stated, BNPL is an alternative to traditional consumer credit, allowing buyers to avoid the debt trap of daily compounding interest rates.

Payments are either debited or charged to a credit card in equal installments, creating four predictable payments lasting no more than six weeks. The total cash outlay is equal to the cost of the original purchase. BNPL is also categorized as Point-of-Sale Financing, Point-of-Sale Lending, or Point-of-Sale Loans, with BNPL vendors also referred to as Point-of-Sale Lenders.

Consulting firm Oliver Wyman has reported that between $20 and $25 billion dollars were spent using BNPL programs in the United States during 2020.


 

How Does BNPL Work?

Consumers who sign up on the platform of their choice (or on multiple platforms) can browse participating merchants’ sites to make their purchases. There is no lengthy, complicated application process, since BNPL loans have a short lending cycle and do not show up on a consumer’s credit report. Simply make the first payment at the time of purchase, and then make equal installment payments over a six week period.

All platforms require that borrowers have a valid mobile number and email address. The age of consent to enter into a contract with BNPL companies is 18 years of age for most states, however residents of Alabama must be at least 19 years old. FICO scores and credit histories are not as important, as most companies look at applications on a case by case basis. Since there are no “hard credit checks” during the application process, it costs nothing to apply as inquiries are not reported to credit bureaus.

Think of BNPL as “free money” or zero interest short-term loans, as the process allows you to stretch out, interest free payments to buy both small and big ticket items. Since the consumer’s account is tied to either a debit or credit card, these platforms give the option of either making a purchase in full or choosing BNPL.


 

What’s the Catch with BNPL Payments?

So what’s the catch? From a consumer perspective, there really is little to no downside, as long as you continue to make the scheduled payments. The “loan” amounts are small relative to available revolving lines of credit tied to most credit cards. The idea is not to overextend one’s debt.

In essence, BNPL solves a need for those who wish to make a purchase but would like the advantage of no additional fees and longer payment periods. With this comes the added delight of being able to enjoy the purchased product immediately, without having to wait until the final payment is made.

Credit limits are determined by algorithms on the individual platform, as they take past credit profile into consideration. As a consumer demonstrates financial responsibility on a particular platform, credit limits are increased over time.


 

Who Uses BNPL?

Many, primarily younger, consumers are adopting BNPL payment programs for three popular reasons:

  1. Want to Reduce Credit Card Debt
  2. Need Access to Credit for Increased Purchasing Power
  3. Want to Improve Credit Scores by Reducing Debt

A popular usage scenario is to line up significant purchases with one’s biweekly paycheck schedule. Though, in most cases, using BNPL services WILL NOT directly improve one’s credit score, they can be an effective tool to reduce reliance on credit cards, and in turn strengthen one’s financial standing.

The appeal of BNPL appears to be generational, according to research from consumer spending data firm Cardify.ai, which found that Gen Z and younger millennials account for more than 80% of BNPL transactions.

Research conducted by Cardify.ai found that consumers consisting of Gen Z and younger Millennials (ages 19 to 34) have accounted for more than 80% of all BNPL transactions.

Why BNPL is Popular

Often compared to traditional “layaway” plans, BNPL has a twist: you can enjoy the purchase while you are still making payments.

Especially helpful BNPL scenarios include:

  • Young professionals with short credit histories looking to furnish their first residence
  • College students looking to establish credit histories
  • Established individuals who have impaired their creditworthiness and need to make immediate purchases
  • Individuals with no credit history or credit cards
  • Consumers who choose NOT to enter the consumer credit racket and are looking for an alternative purchasing strategy
  • Emergency situations such as a flight home for a funeral or a hotel room in a pinch.
  • Consumers who need to make a purchase, but need to spread out the payments to insure they do not exceed their credit card’s pre-set limit

 

The BNPL Concept Is Not New

Companies such as Swedish Klarna and Australian Afterpay have been in business since 2005 and 2014 respectively. Consumers have flocked to these payment systems because of the transparency that they provide with payments and schedules laid out for consumers. Assuming all payments are made on time, there are no fees. Thus the process is “What You See Is What You Get!”

Unlike traditional credit cards which accrue interest on purchases, BNPL provides simplicity in the payment process. As mentioned, 25% of the purchase price is required upfront, at the time of purchase, with the remainder being stretched out in three remaining payments of equal value, due every two weeks. This type of installment plan is especially helpful for consumers who are paid on a bi-weekly schedule.

In comparison, the same purchase made using a credit card may have additional fees added when the full charge hits the statement and the consumer only pays the minimum amount due. Finance charges are compounded on a daily basis using an interest rate that is bordering on being usurious.

Keep in mind: a sale item is not a sale item if finance charges are involved!


 

BNPL vs. Credit Card Payment Scenarios

BNPL Payment Scenarios

Scenario 1: On-Time Payments

Cost of Item: $500
Payment Schedule: 4 payments of $125 made over 6 weeks
Total Paid: $500
Amount of Total for Fees or Interest: $0
Effective Interest Rate: 0.0%

If purchased late in a given month, payments for this purchase could coincide within a 3-month period for an average monthly payment of $167. For example:

  1. Total Payments Made in Month 1: $125 (initial payment)
  2. Total Payments Made in Month 2: $250 (2nd and 3rd payments)
  3. Total Payments Made in Month 3: $125 (final payment)
  4. Average Monthly Payment: $167

Scenario 2: One Late Payment

Cost of Item: $500
Payment Schedule: 4 payments of $125 made over 6 weeks, with one payment being late
Total Paid: $508
Amount of Total for Fees or Interest: $8
Effective Interest Rate: 1.6%

If applying PayPal’s Pay in 4 late fee penalty of $39, the effective interest rate in this scenario would be 7.8%!

Credit Card Payment Scenarios

Scenario 1: Minimum Payment

Cost of Item: $500
APR: 19.215%
Monthly Payment: $50 (minimum required each billing cycle)
Months Necessary to Pay in Full: 11
Total Paid: $549
Amount of Total for Fees or Interest: $49
Effective Interest Rate: 9.8%

Scenario 2: Monthly Payment on Par with the BNPL Scenario

Cost of Item: $500
APR: 19.215%
Monthly Payment: $167 (average payment in the 3-month BNPL scenario above)
Months Necessary to Pay in Full: 4
Total Paid: $516
Amount of Total for Fees or Interest: $16
Effective Interest Rate: 3.2%

Note: For these credit card payment scenarios we used Bankrate’s Credit Card Payoff Calculator.


 

Who Are the Major BNPL Players?

Can I sign up with more than one BNPL platform? Yes! We have identified twelve BNPL platforms that are now available for global use that have significant penetration within the US Home Furnishings retail industry.

Affirm

Founded in 2012, Affirm is an online lender for retail products that are provided through its partner stores. Purchases can be made directly by accessing the Affirm website or via merchant sites which use the Affirm platform. After a “soft” credit check, the consumer is alerted via text or email of approval and will be notified each time a scheduled payment is due. Payments can be made using ACH (Automated Clearing House) transfer, debit card or check. Beware, Affirm is the only platform that may charge a financing fee depending on the merchant, however should you choose to accelerate your payments, you will not be charged a prepayment fee. Finance rates range from 0%-30%. Affirm allows consumers to take out multiple “loans” at once as each application is evaluated as a separate closed-end transaction. CREDIT LIMIT: $17,500.

Affirm on the App Store
Affirm on Google Play


 

Afterpay

With an astounding 4.9/5 Trustpilot rating, Australians have been enjoying this BNPL platform since 2014. Now available in America, Afterpay charges 0% interest and no fees if you pay each scheduled payment on time. A late charge of up to $8 is assessed if you miss any payment date by 10 days. Borrowers who demonstrate strong repayment behavior are rewarded with longer repayment plans. Credit limits are increased as you demonstrate financial responsibility with previous purchases and payoffs. CREDIT LIMIT: starts between $500-$800. 

Afterpay on the App Store
Afterpay on Google Play


 

Klarna

The most established BNPL platform, founded in 2005, Swedish Klarna entered the US market in September 2015. Unlike other platforms, Klarna does not reveal an individual’s credit limit as they believe this protects borrowers from “maxing out” their credit availability.

The Klarna app emphasizes convenient shopping features including:

  • Personalized & Curated Wish Lists
  • Hassle-Free Returns: once you report a return in the app, payments will be paused
  • Trackable Packages: receive instant updates on all purchased from all stores
  • Rewards Program

The company’s most popular product, PayLater allows consumers to make purchases and pay off the entire amount in six weeks. Since there is no set credit limit, consumers can opt for more expensive purchases with longer payoff schedules. However, once the 30-day limit is reached, finance charges are applied. CREDIT LIMIT: No Set Limit.

Klarna’s Pitch to Merchant Partners

Klarna on the App Store
Klarna on Google Play


 

PayPal Pay in 4

Hoping to usurp the global leader, Afterpay, PayPal’s Pay in 4 was founded in 2020 by PayPal who entered the BNPL market rather late. Although PayPal is known as one of the first e-payment providers, their entrance into Point-of-Sale Loan financing appears to be a response to macroeconomic events rather than a commitment to alternative financing options. However, armed with brand recognition, PayPal will be looking to cash in on the uptick in average BNPL order value from $400 in 2019 to $480 in 2020. Based on their Q1 2021 earnings report, they are already experiencing great success with their BNPL product: they handled over $1 billion in BNPL payments globally in Q1, up 36% from Q4 2020.

It is our understanding that wherever PayPal is available for shopping (e.g. “millions of online stores”), Pay in 4 is available within stated purchase limitations (e.g. for purchases between $30 and $600).


Quadpay

Quadpay, was founded in 2017 as part of Zip Company Limited, an Australian financial technology company. Similar to some of the other major BNPL platforms, Quadpay does not charge an interest rate, but does however add an additional $1 for every installment made. Thus a standard four installment payment plan would include fees that total $4.

You can use the Quadpay app to shop at popular major retailers such as Target, Trader Joe’sAmazon and Macy’s. In fact, Quadpay states that you can use their app anywhere that accepts Visa. If, when using the app, you do not see a merchant or brand listed, you can create a new one-time-use virtual credit card for the store of your choice. When making a purchase request through the app, it is important to enter an amount that includes taxes and shipping, if applicable. It is best to overestimate the amount as the purchase will be denied if the total amount is greater than that on your request.

Quadpay has varied spending limits, which is displayed on the home screen of the app, and adjusted in real time to reflect recent purchases and payments. The available balance will be adjusted based on factors such as: length of time you’ve been a Quadpay user; your payment history; and external factors such as the current economic climate.

In some instances application to the Quadpay platform could result in being waitlisted the first time you apply, as you will need to wait 30 days before you re-apply. CREDIT LIMIT: No set limit.

Quadpay on the App Store
Quadpay on Google Play
Quadpay Chrome Extension


 

BNPL Vendor Comparison

BNPL Vendor Financing
Fee
Avg.
Credit Limit
Max
Pay Back
Period
Late Fees Interest Fee Min
Credit
Score
Affirm 0-30% Up to $17,500 1 year No Yes 550
Afterpay 0% Up to $2,000 6 weeks Yes, $8 No None
Klarna 0% No Set Limit 6 weeks;
30 days;
6-36 months
Yes, $7 Yes None
PayPal Pay in 4 0% $30 to $600 per purchase 6 weeks Yes, $39 No 600
Quadpay $1 per installment No Set Limit 6 weeks Yes, $7 No None

 

Additional BNPL Vendors


 

Home-Related Merchants & Brands that use BNPL Apps

Here is summary of popular stores, ecommerce sites and brands within the broad Home Goods Category (e.g. furnishing, decor, hardware, etc.) that are accessible with various BNPL payment programs and apps. To see complete and up-to-date lists of merchants per BNPL vendor, be sure to visit the respective site.

Quadpay

Ace Hardware, Ashley Homestore, Bed, Bath & Beyond, Big Lots, Bissell, Casper, CB2, Container Store, Cost Plus World Market, Crate & Barrel, Design Within Reach, Dyson, Etsy, Home Depot, Houzz, HSN, Ikea, Joss & Main, Keurig, KitchenAid, Lamps Plus, Le Creuset, Lulu & Georgia, Michaels, One Kings Lane, Overstock, Pier 1, QVC, Saatva, Stanley, Staples, Sur La Table, Target, TJ Maxx, Walmart, Wayfair.

Quadpay’s full list of Home merchants


Affirm

Apt2B, The Back Store, Bellacor, Bissell, Boll and Branch, Breville USA, Casper, Design Within Reach, Dyson, Havenly, Hoover, iRobot, Joybird, KitchenAid, Lulu & Georgia, Michaels, Modsy, Pottery Barn, Saatchi Art, Walmart, West Elm, Williams Sonoma, Wine Enthusiast

Affirm’s full list of Home merchants


Afterpay

Anthropologie, Bed, Bath & Beyond, Calphalon, Cost Plus World Market, Houzz, Lamps.com, Pier 1

Afterpay’s full list of Home merchants


Klarna

Brookstone, Design Milk, Dormify, Etsy, H&M, LG, Macy’s, Marks & Spencer, Saatva, Sonos

Karna’s full list of Home merchants


PayPal Pay in 4

Bed, Bath & Beyond, Best Buy, Bose, Sonos, Target, and wherever PayPal is supported for purchases between $30 and $600.

PayPal’s Pay in 4 highlight list of Home merchants


 

Does Amazon Offer BNPL?

Yes, currently there are at least three methods to buy on Amazon with BNPL:

  1. Purchase a product on Amazon that has the 5 Monthly Payments option
  2. Use a BNPL app (e.g. Afterpay, Klarna, and Quadpay) that works with Amazon to shop and buy on Amazon within the respective app
  3. Use the Flex Pay option of Citi’s credit card, which allows shoppers to choose from several payment plan options, including 3-, 6-, 12- and 48-month options

Amazon’s direct BNPL payment option incorporates a 5-payment schedule:

  • Initial Payment: Shipment Date
  • 1st Payment: 30 Days from the Shipment Date
  • 2nd Payment: 60 Days from the Shipment Date
  • 3rd Payment: 90 Days from the Shipment Date
  • Final Payment: 120 Days from the Shipment Date

However, finding products on Amazon that are eligible for the 5 payment plan is not easy, and when found, the BNPL option may not be available for long periods of time. Products within the Electronics category are more likely to be eligible, especially Amazon products such as Echo, Kindle, Fire, and Ring devices.

Amazon customers that have a Citi credit card can use Citi’s Flex Pay option, which allows shoppers to choose from several payment plan options, including 3-, 6-, 12- and 48-month options. These plans, however, do include interest. Flex Pay is an on-card financing program which means cardholders do not need to seek separate approval for these loans, as they might with other BNPL products.


 

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