Buy Now, Pay Later (BNPL), like Affirm or Klarna, is a popular payment method these days. You’ve probably heard it talked about if you haven’t used it yourself. However, many people don’t know what BNPL truly is or how it works.

 In this second entry of our “Things No One Ever Taught Me” series, we’ll tell you everything you need to know about BNPL.

Q: What is Buy Now, Pay Later?

 A: BNPL splits the original price of high-dollar items into four or five installment payments. You pay the first installment at checkout time and receive your item. Then, you usually pay one installment every two weeks until the item’s paid off.

 However, BNPL isn’t just a free installment service. It’s technically a loan, which means you’re taking on debt. You’ll fill out a short application and undergo a soft credit check to use it.

 Here’s an example of how it works: You want to buy a $500 TV, so you choose a classic “pay in four” BNPL option. You fill out the application, are approved and pay $125 to get your TV. You’ll pay an additional $125 every two weeks until you pay off the TV.

 Q: How Is It Different from Credit Cards?

 A: Unlike credit cards, many BNPL services don’t charge you interest. Instead, they charge the seller interest. Sellers accept this because they expect you to spend more without interest payments. BNPL also gives easier approvals than many credit cards, even if you have a low credit score.

 Q: What Are the Risks?

 A: BNPL seems amazing, but it has its share of risks:

 ·         Lower up-front payments for pricey items could cause overspending.

·         Late payments could add fees or surprise interest to your purchase.

·         It’s new, so there aren’t many consumer protections.

·         Credit bureaus track it, even if it isn’t part of your credit score right now.

·         You could wind up in a lot of debt without realizing it.

We want our members to make the most informed financial decisions possible, so we hope this helps you when considering BNPL.

 Learn more about BNPL here.