What is buy now, pay later and what is the application process?

Buy now, pay later (BNPL) is a way to pay for purchases in installments over time. It allows you to split one big purchase into multiple small payments, making them more manageable. Buy now, pay later can be a helpful payment option for purchasing expensive items. Recently, this method has been growing in popularity as shoppers seek more convenient and affordable payment solutions.

According to the Wall Street Journal, PayPal’s Pay in 4 is the “best overall” buy now, pay later app.¹ Using the app, you can check out immediately, apply for financing, and spread the payments out over the course of several weeks or months.

While buy now, pay later is often low or 0%-interest, you have to stick to a payment schedule. If you don’t, charges can add up.

Learn how to get purchase financing from PayPal and how to make the most of it.

Table of contents

• What is buy now, pay later?
• How does buy now, pay later work?
• What is PayPal Pay Later, and how to use it?
• How buy now, pay later applications work
• Pros and considerations of buy now, pay later
• Buy now, pay later best practices
• Buy now, pay later with PayPal
• Frequently asked questions

What is buy now, pay later?

Buy now, pay later is a type of shopping payment plan where a third-party company pays the merchant on your behalf. This effectively opens an installment loan, which you’ll settle over time by paying the balance.

How does buy now, pay later work?

Buy now, pay later solutions work by integrating with the checkout processes of partner e-commerce retailers and department stores, among other merchants. First, you need an account with the loan provider, and then, at checkout, you can apply for financing to pay over time.

You can use buy now, pay later solutions for many different types of payments, including everyday purchases, necessary expenses, travel reservations, or gifts for special occasions.

For example, a customer may be buying a new $1,500 couch for their living room. With a BNPL option, they could complete their purchase, make a $375 down payment, and then pay the rest in three $375 installments.

Tip: As with all purchases, try to avoid spending beyond your means. While buy now, pay later can offer the flexibility to spread out purchases, it’s important to stay on top of your finances and ensure you aren’t buying something you can’t afford.

What is PayPal Pay Later, and how do you use it?

PayPal Pay Later is a way to purchase things now and pay for them in installments. Even if the store doesn’t have financing options, you can pay over time through PayPal with no late fees. To use Pay Later, apply when you check out with PayPal and get a decision on your application in seconds. From there, you can choose to split purchases into four bi-weekly payments or up to 24 monthly payments.², ³

Here’s how each option works:

• Pay in 4: The total price is split between 4 equal payments.²
• Pay Monthly: The total price is split between 3, 6, 12, or 24 payments and then spread over that number of months.³

PayPal Pay Later applications don’t require a hard credit check. This means you can generally apply for the loan without impacting your credit score. If you’re approved, you can choose your financing option and set up secure online payments to pay the balance over time.

Then, you can track your purchases and outstanding balances in the PayPal app for easy payment management.

How buy now, pay later applications work

While buy now, pay later applications generally don’t involve a hard credit pull, the lender may request financial information to decide whether to approve you. Here’s what they might consider:

• Your credit score
• The purchase price
• Any history you have with the lender
• Available funds on your payment method

Lenders often rely on your personal history with them. For example, if you have a long history of using PayPal as an alternative to banking and have an account in good standing, you may be eligible for larger amounts or longer payment plans. That’s because you’ve established a history of trust and on-time payments.

If it’s your first time using buy now, pay later, or you have a low credit score, try starting with a small purchase that will be easy to pay off on time. That way, you can build up to larger approvals.

Potential advantages

Buy now, pay later can make large purchases more achievable. Here are some of the potential advantages:

• Smaller payments: While it doesn’t save you money, making a series of smaller payments can make large purchases more affordable and accessible.
• Flexible payment schedules: You can often select from multiple timelines and payment schedules to find the monthly payment that best fits your budget.
• Efficient application process: When you use PayPal Pay Later, you can get a decision in seconds.
• App-based: PayPal Pay Later works through the PayPal app, which you can use to manage payments on your phone.
• Low or 0% interest financing: Many buy now, pay later services offer 0% interest, like PayPal Pay in 4.
• Accessibility: There might not be a hard credit check, so you may not need to worry about the impact of a failed application, and you can sometimes find out what you qualify for before deciding. You can typically apply right at checkout when choosing payment methods.

Potential challenges and risks

Financing always comes with some considerations, and buy now, pay later solutions are no different. For example, there are penalties if you can’t make payments on time. Here are some potential risks:

• Missing payments: If you miss payments or don’t pay off the balance in time, then the lender may charge interest plus late fees. Penalty interest can be quite high. In addition, missing payments may negatively affect your credit score.
• Possible overspending: It’s easy to lose track of how many payments you have going out at once. If you choose financing too often, you can end up with many small monthly payments that add up to more than you can handle.
• Possible dispute settlement risks: Buy now, pay later can complicate matters if you have a dispute with the seller or need to return merchandise. The seller needs to refund the lender, and then the lender refunds you for any payments you made. However, you may still be responsible for penalty fees and interest if you've missed payments.
• Payments can be large: For large purchases, you may not be approved for a type of financing that fits your budget. It’s important to assess whether you can afford the payment amounts.
• You could be denied: Approval isn’t automatic, so it’s best not to assume you can get buy now, pay later financing for important purchases.

When can a buy now, pay later app be used?

Buy now, pay later apps are available at any merchant that integrates with them. Once you’ve added items to your cart online, begin the checkout process to see what financing options and apps are available. For example, when you’re checking out using PayPal, you can select the Pay Later option to begin the approval process.

Buy now, pay later best practices

Whenever you apply for financing, it’s important to ensure that you’re fully aware of the terms, level of service, and fees. Follow these best practices to ensure you stay within a manageable budget:

• Use a trusted provider. Buy now, pay later options should have clear terms, especially around fees, and offer convenient payment options.
• Limit the number of financing options you have running at once. Payments can quickly become overwhelming, so you may need to wait until you finish paying off one loan before you apply for another.
• Always read the payment terms to understand the timing, how much you’ll have to pay at the time of purchase, and whether there are late fees.
• Set up automated payments to ensure that you pay the installments on time. Regularly assess how many automated payments you have operating at once.
• Start with small purchases to build up a history with the lender if you don’t have good credit. Then you can work up to larger balances.
• Read reviews from past users to assess whether the buy now, pay later option provides a good service.

Buy now, pay later with PayPal

PayPal Pay Later is available with millions of e-commerce and in-store merchants, including many of your favorite brands.

When you choose to buy now, pay later with PayPal, you can break payments up over 4 biweekly payments or over multiple months.², ³

With responsible financial management, it’s a great way to get credit with purchase protection included and no late fees.