A Comprehensive Guide to Buy Now Pay Later in the U.S.
You might have heard of Buy Now, Pay Later — but how do these installment plans work and what are the advantages? Let’s dive in to everything you need to know about BNPL plans.
Updated 
12 min. read
Have you ever needed to make a major purchase, but the timing wasn’t ideal? Maybe your water heater breaks down unexpectedly, you find a great deal on a vintage sofa, or you desperately need to upgrade your phone — but you don’t want to blow your budget to do it.
In these situations, a Buy Now, Pay Later plan can help bridge the gap. These flexible, convenient plans help break up large purchases into smaller payments, spaced out over a set period of time. This can help make it more manageable to make purchases you need, when you need them.
Here’s everything you need to know about Buy Now, Pay Later plans in the US, and how they can be a helpful tool in your financial toolbox.
What is Buy Now, Pay Later (BNPL)?
A Buy Now, Pay Later plan (often referred to as BNPL) is a flexible short-term loan that lets you make purchases and pay for them over a set time period.
Typically, a BNPL plan falls into one of two categories:
- You can opt into a BNPL plan with your credit card provider or financial institution after you’ve made a purchase.
- BNPLs are also widely available through third-party providers while you are making a purchase, like when you’re completing an online checkout.
It’s important to note that when you set up a BNPL plan with a third-party provider, you are essentially signing up for a type of unsecured loan. That means you aren’t required to offer any security or collateral like you would with a secured loan, like a home equity loan.
Now that we’ve covered the basics, let’s get into the details of BNPL plans and how they actually work.
How does Buy Now, Pay Later work?
In general, a BNPL loan is an agreement between a consumer (you) and a financial institution (like a bank or credit union) or a third-party provider that revolves around the purchase of a product/service. The plan provider agrees to finance this purchase, and in turn you agree to repay the amount of that purchase on the terms set by the provider.
These terms typically include:
- Purchase amount: the total amount of the loan.
- Payment amounts: how much each repayment will be.
- Payment frequency: the timing of repayments.
- Number of payments: how many installments the repayment is broken into.
- Interest rate and/or fees (if any): the additional amount you’ll need to repay beyond the original purchase price.
- Payment method: how you’ll make repayments (e.g. pre-authorized debit payments).
Keep in mind that there are often differences in terms and agreement details when using BNPL plans at point-of-sale vs. post-purchase. That’s because a BNPL at the time of purchase is usually through a third-party provider or your credit card provider, while a post-purchase BNPL is set up through just your credit card issuer.
For example, BMO PaySmartTrade mark offers BMO credit card holders the opportunity to opt into installment plans for purchases of $100 or more made with their card. With a PaySmart Plan, you can split your purchases into equal payments and choose to pay them back over 3, 6 or 12 months with a monthly fee.1
Buy Now, Pay Later advantages
There are plenty of benefits of BNPL plans, from making a coveted splurge fit in your budget to covering emergency purchases. Here are just a few of the main advantages of BNPL plans:
- Convenient: It’s a convenient way to make larger purchases fit into your budget.
- Spread payments out: You can spread payments out over time to better fit your financial situation or lifestyle.
- BNPL credit review: Before you set up a BNPL Plan, read the terms and conditions since credit check and reporting policies can vary by provider.
- Easy to monitor and manage: You can monitor and manage your plan with digital self-service features from your device.
- Straightforward payment plans: These plans have a simple structure with straightforward payment plans, so they’re easy to understand and repay.
- Low or no interest: Most BNPL "pay in four" plans commonly offer low or no interest on purchases.
- Easy to access and set up: It’s easy to access and set up, particularly if you use a BNPL plan through your financial institution or credit card provider.
Now that we’ve covered all the advantages, you might be wondering — are there any disadvantages to a BNPL plan?
BNPL comparison: 3rd party v.s credit card providers
Like with any financial decision, there are a few factors to consider when deciding if a BNPL plan is right for your personal financial situation. Particularly, it’s important to understand the key differences between BNPL plans with a third-party provider vs. your credit card provider.
Considerations | BNPL with a third-party provider | BNPL with a credit card provider |
|---|---|---|
| Timing | BNPL most commonly activated at time of purchase | BNPL most commonly activated post-purchase |
| Rewards and benefits | Rewards or cash back may or may not be earned on purchases, depending on the provider and payment method
| If you have a rewards card, receive any of the usual rewards or cash back earned on purchases |
| Repayment plans | 6 weeks to 48 months, depending on the provider | 3 to 24 months, depending on the provider |
| Missed payments | Late charges, overdraft fees, and APR payments of up to 30% on principal amount, depending on provider and payment method | This will vary depending on the provider and should be outlined in their individual terms and conditions. |
| Eligible purchases | Typically no minimum purchase, but varies based on provider | Typically $100 minimum purchase |
| Ability to build credit | It varies by provider - some report to credit agencies, helping you build credit, while others don't. Always check the terms before setting up a plan | Allows you to build credit as you normally would, since payments are made through your credit card |
| Legal regulations and protections | Currently, no exclusive regulations mean these plans may lack some consumer protection (depending on provider), such as refunds for faulty goods or scams | Consumers are protected under Regulation Z of the Consumer Financial Protection Bureau, which mandates clear disclosure of terms and costs |
Does BNPL show up on your credit report or impact your score?
As a savvy consumer, you’ll probably want to know how a BNPL will impact your credit score.
Here’s what you need to know.
Does a BNPL plan impact your credit score?
Setting up a BNPL plan usually does not require a credit check, but this can depend on your provider.
Typically, your financial institution won’t conduct a credit check for a post-purchase BNPL plan. For example, BMO PaySmartTrade mark doesn’t require an application or credit check, so it won’t ding your hard-earned credit score. That said, it’s important to manage your credit utilization, since that can have an impact on your credit score.
These post-purchase BNPL plans through your financial institution, like BMO PaySmartTrade mark, will not impact your credit score as long as your pay your monthly minimum payment due on time.
We recommend reviewing the terms and conditions carefully before starting any BNPL plan. Some providers may perform a hard credit check, which could impact your credit score. Since policies vary and continue to evolve, it’s important to refer to the specific terms and conditions of the provider you are working with for the most accurate and up-to-date information.
Like with any loans, late or missing payments can have a negative effect on your credit score.
Do BNPLs show up on a credit report?
This varies from provider to provider depending on whether they report payment information to a credit bureau. Be sure to read the BNPL provider’s terms and conditions that you’re opening a plan with before setting it up.
What is the minimum credit score needed to use a BNPL plan?
There is no universal minimum credit score for Buy Now, Pay Later (BNPL) plans. Requirements vary by provider—some may not check your credit at all, while others might review your credit history or perform a soft credit check. Always check the terms of the specific BNPL service you plan to use.
Can BNPL plans improve your credit score?
If your BNPL provider does not report payment information to the credit bureau, then this will likely have no impact on your credit score.
If a BNPL provider reports payments, this can improve your credit score if payments are made on time. On the flip side, any reported late payments or delinquencies can decrease your credit score.
Using a BNPL installment plan through your credit card provider also means you’ll have one less payment channel to track, so you might find it easier to make consistent, timely payments each month — a surefire way to boost your credit score.
How to make payments for your BNPL plan
Once you’ve set up a BNPL plan, you’ll need to make regular payments based on your provider’s terms.
If using a third-party provider, you can typically make payments toward your BNPL plan using:
- Pre-authorized debit payments: you provide your bank information and your payments will be automatically debited from your account. You’ll need to make sure your account has enough funds to cover each payment.
- Pre-authorized credit card payments: you provide your credit card information and the provider automatically charges you for each payment.
If using a BNPL plan offered by your credit card provider, like BMO PaySmartTrade mark, the method of repayment may be slightly different.
- Monthly minimum payment: Your monthly installment payment will be added to the minimum payment due on your credit card account each month. This will continue for the length of your plan, whether you opt for 3, 6, or 12 months.
- Billed on credit card: Continue to pay off your credit card account like normal. If you have automatic payments set up on your credit card, you’ll want to make sure those cover your BNPL payment installments, particularly if you typically pay the minimum amount on your card.
How is the BMO PaySmartTrade mark Installment Plan different from other BNPL Plans?
Like other installment plans, our BMO PaySmartTrade mark Plan empowers you to make the purchases that you need and turn them into smaller, more manageable monthly payments.
Here’s how BMO PaySmartTrade mark stacks up against third-party BNPL plans:
- Since your plan is linked to your credit card, there’s no separate application needed to get started.
- There’s no additional provider needed – everything can stay in one place with your BMO credit card Account, making it easier to manage your plan and help ensure you don’t miss payments.
- BMO PaySmartTrade mark does not require any credit check to get started, unlike some third-party providers that require a soft credit check.
- If you have a rewards card, you’ll still earn rewards like you normally would on purchases.
Are there any fees associated with the BMO PaySmartTrade mark Installment Plan?
Like many BNPL plans, there is a monthly fee with the BMO PaySmartTrade mark Installment Plan. This is set at up to 1% monthly fee of the original purchase amount and is calculated and disclosed to you once you start setting up your plan.
For example, say you spend $600 to finally add a dishwasher to your kitchen (nice!). If you split this into equal payments over 6 months using BMO PaySmartTrade mark, your fee will max out at $6 a month for the entire 6 months. That’s $36 total added to the original $600.
You’ll be able to review the exact amount of your monthly fee, along with your monthly payment amount, when you’re setting up your plan.
If you decide to cancel your plan before it’s totally repaid, the remaining balance will be subject to standard interest rates, just like a normal credit card payment. You’ll also need to pay any recent payments that have already been billed.
The bottom line
A Buy Now, Pay Later plan is an easy way to make large payments a bit more manageable. It can be a great way to ease the burdens of surprise expenses or help bridge the gap on a major purchase, without breaking your budget or impacting your credit score. Sign in to BMO Online Banking to learn more about BMO PaySmartTrade mark and set up a plan that suits you today.
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Footnotes
Footnote 1 BMO PaySmartTrade mark installment plans allow cardholders to repay specific eligible purchases in equal monthly payments over a defined repayment schedule. When you create a PaySmart Plan, it will be subject to a fixed monthly fee of up to 1%. The exact fee will be based on the purchase amount and the duration of the plan, which will be disclosed when the plan is created. The monthly plan fee will remain the same until the PaySmart Plan is paid in full. Review the Terms and Conditions.