Buy Now, Pay Later: Fees, Credit Scores and Missed Payments

A buy now, pay later (BNPL) loan is an installment loan that lets you take an item home with little or no money down and pay the balance over four or fewer payments. The Consumer Financial Protection Bureau (CFPB) says many BNPL loans charge no interest, but most charge late fees, and a loan that goes unpaid can be sent to a debt collector. The CFPB pages cited here were last reviewed in 2024.

1. How a typical plan works

The CFPB describes one common plan: you split the cost into four interest-free payments due every two weeks. The first payment may be due at checkout or two weeks later. The option usually appears when you shop online or in a mobile app, though it is also offered in stores.

Here is how that looks with an assumed purchase. Take a $200 item split into four equal payments: each is $50. If the first payment is at checkout, the others fall on about day 14, day 28 and day 42. Add those up and you pay $200, with no interest, if every payment is on time. The dates are an illustration of the biweekly schedule the CFPB describes; each lender sets its own terms.

2. What applying involves

The CFPB says applications ask for details such as name, email address, mobile number and date of birth. Generally you must be at least 18, have a mobile phone number, and have a debit card, credit card or bank account for payments. Unlike a credit card, your creditworthiness may be evaluated each time you start a BNPL purchase. The CFPB notes that most BNPL loans do not require a hard credit inquiry, though other online installment loans that let you borrow larger amounts over longer periods do require hard credit inquiries and report payment history.

3. Fees: what the CFPB says

Do BNPL loans have fees? The CFPB's answer is "generally, yes." While many do not charge interest, most charge late fees if you miss a payment. Policies vary by lender, so read each loan's terms and conditions. Three other costs can follow a missed payment:

• Bank fees. If you set up automatic repayment from a debit card or bank account and the money is not there, your bank may charge an overdraft or non-sufficient funds fee.
• Being blocked. You could be prevented from using the BNPL loan on future purchases until you catch up.
• Collections. If you do not repay, the account may be sent to a debt collector.

The CFPB's page does not list dollar amounts for late fees, so there is no general figure to quote. Check the terms for your lender and the specific plan.

4. Credit scores: what the CFPB says

Most BNPL products that let you pay in four interest-free installments do not report to the major credit reporting companies. That means, in the CFPB's words, your credit scores will not be helped or hurt by your repayment behavior. Two caveats from the CFPB:

1. If you do not repay and the loan goes to a debt collector, the collector's report could hurt your credit scores.
2. Some larger installment loans do perform hard credit inquiries and do report payment history. Read the details of the loan before applying and again before accepting it.

The CFPB also says that when you apply for a standard four-payment BNPL loan, lenders generally do not perform the hard inquiries that can affect your credit scores. Because practices differ, treat that as a general statement, not a guarantee for every lender.

5. A pre-purchase check

None of these steps come from a CFPB formula; they apply the agency's points to your own budget.

1. Add up your existing installments. Each BNPL purchase has its own schedule, so list every due date in one place. The more plans you hold, the harder it is to see how much leaves your account in a given week.
2. Match due dates to paydays. If a payment lands before your next paycheck, an autopay failure can bring a bank fee on top of a late fee.
3. Read the missed-payment terms. Find the late fee, the grace period, and whether the lender can block new purchases.
4. Decide whether you would buy it without the plan. The CFPB says to make sure you can afford the payments before making the purchase.
5. Keep the confirmation. Save the terms you accepted and the receipt in case you need to dispute a charge or a return.

6. If you cannot pay

The CFPB points out that a missed payment can lead to late fees, bank charges, loss of access to future BNPL purchases, and eventually collections. The CFPB adds that if a debt collector or the BNPL lender reports payment information to the credit reporting companies, missed or late payments might hurt your credit history and scores.

7. Key takeaways

• BNPL means four or fewer payments, often interest free, but most lenders charge late fees.
• Autopay from a bank account can trigger overdraft fees if the money is not there.
• Most four-payment plans do not report to credit bureaus, but a collector's report can hurt your scores.
• Add up every installment and due date before you add another.
• Terms differ by lender: read them before accepting.