The modern economy is evolving, and more retailers than ever before are offering special financing options like “buy now, pay later.” Letting customers pay in installments is especially common among furniture retailers; lots of top-tier merchandise can be pretty expensive if you try to buy it outright. A buy now pay later payment plan makes buying furniture more accessible for many Americans.
Is buy now pay later furniture really a good idea? If you’ve never used buy now pay later financing, you’ve come to the right place. Let’s break down buy now pay later financing in detail. We’ll also go over the benefits and potential downsides of buy now pay later financing, plus look at some alternatives.
What Does Buy Now Pay Later Mean?
In a nutshell, buy now pay later or BNPL is a type of purchase financing for progressive leasing of furniture, electronics, and other items from a retailer even if you don’t have the product’s full retail value sitting in your wallet or bank account at the moment.
With most BNPL financing, you:
- Make a deposit or down payment for the product, usually 25% of its total asking price
- Then make between three and six further payments, one per month, until you pay off the asking price in full. You can also do weekly payments or a different payment schedule if preferred.
In other words, buy now pay later financing is a type of short-term purchase financing. It’s frequently used to purchase small to medium-size products and goods, like appliances or expensive electronics. It’s not usually leveraged for more expensive purchases, like buying a car.
Buy now pay later financing is a form of short-term loan. Like with all loans, you borrow money from the loan provider, then pay it back over time. This affects your credit; missed payments can decrease your credit score, while on-time payments may increase it.
But unlike taking out a traditional loan or line of credit, buy now pay later financing is accessible and you can be approved for it in a matter of moments. Many retailers (especially online retailers) offer buy now pay later financing at checkout pages.
Approval for these agreements is super quick and you don’t necessarily need a very high credit score to qualify. Therefore, more shoppers than ever before are considering using buy now pay later financing to buy the things they need ASAP rather than having to save or take out a loan with a high-interest rate.
Is There Interest on Buy Now Pay Later Purchases?
Usually, no, but it depends on the financing provider. Some common buy now pay later loan providers include:
- Afterpay
- Affirm
- Zip
- Klarna
- PayPal
- Sezzle
- Synchrony
- SplitIt
- Amazon
- Aclma
Each of these providers partners with different retailers/companies. Most of them do not charge any fees or interest for BNPL purchases. In this way, buy now pay later purchases are a form of interest-free loan financing.
Here’s an example of how it works:
- Say that you want a new dresser or similar piece of furniture. It costs $400
- If you find a buy now pay later retailer, you can put down $100 and purchase the furniture the same day you find it
- Then, you have to make three more monthly payments of $100 each until you pay off the $400 asking price
- Since the BNPL purchase doesn’t come with interest, you don’t have to pay more than the total asking price
Because most buy now pay later financing is interest-free, those with limited cash may find it to be a better solution than a traditional loan or credit card. Traditional loans and credit cards usually charge interest rates for their remaining balances.
Interest rates, in a nutshell, are small percentages of money added to the remaining total each month. Interest rates are how lenders and credit card companies make a profit by giving funds to people in the first place.
However, high-interest rates can make purchasing a product through a loan or with a credit card more expensive in the long run. Thus, they’re not always good choices for folks limited on cash who still need to buy something quickly.
BNPL loans are some of the only interest-free loans on the market. This makes them unique compared to other loans, such as traditional furniture loans or personal loans.
Can Anyone Qualify for Buy Now Pay Later?
Yes, but it’s not guaranteed. Buy now pay later financers don’t necessarily look at one’s credit score or credit history when determining whether they will be approved for a BNPL financing agreement.
In fact, many people with no or subpar credit can still qualify for buy now pay later financing, especially for products like furniture and electronics. This all depends on the BNPL provider, however. Each provider has different rules and restrictions and may be more or less inclined to offer BNPL financing to individuals with low credit.
If a BNPL financing provider doesn’t look at credit, they may look at alternative financial attributes to determine whether someone qualifies. These attributes can include:
- Past purchases from the company
- Total income each month
- Total savings in a savings account
- And more
So while anyone can qualify for buy now pay later financing, it’s never a guaranteed way to buy something instantly. Still, people who need to buy furniture or other products immediately can try several BNPL providers if one of them does not offer financing.
What Does APR Mean on Buy Now Pay Later Purchases?
Some buy now pay later purchases may come with interest or APR. APR stands for annual percentage rate, and it represents the total money paid via interest over the course of a year, expressed as a percentage.
However, the majority of buy now pay later purchases follow short-term financing arrangements. Therefore, they don’t usually have an APR even if they include an interest rate. Short-term financing deals like buy now pay later purchases are typically resolved within three to four months. Some may be resolved within three to four weeks.
If a buy now pay later purchasing offer comes with APR, be wary. It could mean that the purchasing offer has more strings attached than usual or that the term for the financing is longer than normal. In these circumstances, a buy now pay later financing offer is more similar to a traditional loan than not.
And if that’s the case, you might benefit from simply finding an affordable personal or furniture loan with good interest rates and terms.
Buy Now Pay Later Furniture: How It Works
Still not sure exactly how buy now pay later furniture financing works? Here’s a breakdown with an example:
- You need to find a new mattress for your apartment, as your old mattress is very old and lumpy and is causing you back pain problems
- You need the mattress soon because you don’t want to spend more than another few nights on your old mattress
- Therefore, you shop online for new mattress deals and find one that you really like
- However, the new mattress is $1000. That’s more than you can afford outright since you don’t have that much in your bank account or that much space on your credit card
- Fortunately, the mattress retailer offers a buy now pay later financing solution. Under this solution, you’ll pay 25% for the mattress upfront, then pay 25% each month for three more months following your purchase
- That means you’ll pay $250 to purchase the mattress and have it delivered to your door. Each following month on the same day, you’ll pay $250 until you pay off the $1000 in total
- The buy now pay later financing offer doesn’t come with interest, so you won’t pay more than $1000 total
- Since the terms are agreeable, you purchase the mattress with buy now pay later furniture financing. That way, you get the mattress you need quickly without having to save up for $1000
This is essentially how BNPL financing works regardless of the product type or the provider. Remember that buy now pay later financing is a type of loan. It’s a short-term loan, so your credit can only be affected to some extent. But missed payments can decrease your credit score while on-time payments may affect your credit report positively.
Choosing the Right Financing Terms for You
When you consider buy now pay later financing, be sure to look at the terms of the financing agreement before signing on the dotted line. Different BNPL providers will have different financing terms, including:
- How long the financing will last. Most BNPL financing deals last for between three and four months. Some may last for a few more months than this
- As noted above, most BNPL financing doesn’t include any interest or APR. Some providers do, however, so double-check what the conditions of the financing are so you aren’t negatively surprised
- The initial payment amount. Typically, this is 25% of the financed product’s asking price, but it could be 50% depending on the provider. It may also be much less, sometimes as little as 10%
Like when you open a new credit card/line of credit or take out a new loan, you should always review the details of the financial arrangement before agreeing. This is good monetary practice and a great financial habit to keep for your entire life.
What Happens if You Miss a Payment?
If you miss a buy now pay later financing payment, one of two things may happen:
- You’ll be charged a late fee, which is due immediately or with your next payment
- Your BNPL financing provider could freeze your account and prevent you from making further purchases
If you miss more than one payment or you don’t repay the missed payment promptly, your debt may also be turned over to a debt collector. If this occurs, the debt collector could harass you incessantly and constantly try to get you to pay back what you owe.
Therefore, it’s a good idea to avoid missing your BNPL financing payments whenever possible. Since there are only a few of them in most loan contracts, you should plan ahead and make sure you can budget appropriately for your financing before making the initial down payment.
On top of that, if you miss payments regularly (or if you don’t make a payment in the full required amount), your credit score will be negatively affected.
The big credit bureaus, which include TransUnion, Equifax, and Experian, use a lot of data to determine your creditworthiness and to create accurate credit scores for consumers. One of the biggest weighting metrics is payment history.
Since BNPL short-term loans require you to make on-time payments, that information is reported to the credit bureaus. If you fail to make payments on time regularly, that will show up as a red flag on your credit report.
On the plus side, making payments on time and in full will have a positive impact on your credit score. Therefore, BNPL financing could be a great way to build credit if you can’t qualify for a traditional loan or a credit card.
Once more, it’s a good idea to be very careful when signing up for BNPL financing so you don’t bite off more than you can chew. Most BNPL financing loans cannot be renegotiated; for example, if you unexpectedly run out of cash right before your last payment, that payment will still be due for whatever you owe on your financed purchase.
Making Payments Automatically on Furniture
Many buy now pay later financers will have auto-pay features that buyers can and should take advantage of. Making payments automatically toward BNPL loans is smart because:
- It makes it less likely that you’ll miss or forget a payment by accident
- It means you can automatically budget money using banking software or apps and never have to think about paying for your financed product over time
Some buy now pay later lenders require you to use auto-pay in order to make a purchase in the first place. Again, this is recommended since it’s a net benefit on your part. By making payments automatically, you guarantee that they are on time and in full. This will, in turn, improve your credit score in the eyes of the big credit bureaus.
If you aren’t sure whether a BNPL loan is a good idea with autopay:
- Calculate or examine the total price of a to be financed product
- Then divided by the number of total payments you’ll need to make. This is the monthly payment you’ll have to agree to
- If this is too much to pay every month, you can’t afford the BNPL product and should save your money or look elsewhere
Making payments automatically on furniture is even wiser. Becca’s Home has automatic payment features for just this reason. When you lease-to-own furniture from Becca’s Home, we allow you to make automatic payments every month for our standard 17-month terms.
With this feature, it’s easier than ever to make sure you don’t miss payments and damage your credit score.
As a side note, it’s also a good idea to use auto-pay for other regular loans or bill payments. For example, odds are you have several utility bills you pay every month. To save yourself some mental power and time, set those bills to auto-pay. In this way, you make sure that you don’t lose your utility access. Plus, your credit score gets a passive increase each month with each successful bill payment.
Choosing the Right Buy Now Pay Later Furniture Store
As you can see from the above breakdown, buy now pay later furniture can be beneficial… but it heavily depends on where you buy the furniture from. Some BNPL providers or retailers don’t have your best interests at heart. They may advertise BNPL deals that:
- Come with bad terms, such as only one or two required payments for high amounts
- Come with high interest or APRs
- Come with extra fees, including but not limited to late fees
That’s why it’s important to choose the best buy now pay later furniture store you can. Fortunately, there are lots of great retailers that offer good furniture buying options.
For example, Becca’s Home doesn’t finance furniture for you through a traditional loan. Instead, you can lease furniture through us. When you sign a lease-to-own contract with Becca’s Home, we retain ownership of the furniture until you purchase it in full.
But leasing furniture this way is a great idea because:
- It allows you to select the perfect furniture for your house or apartment from our diverse and extensive catalog of pieces. We offer furniture with beautiful wood or bark accents, comfy cushions, and much more!
- It lets you buy furniture without having to save up a lot of money or empty your bank account
- You get to enjoy your furniture early while making affordable monthly payments over time
Each lease-to-own contract from Becca’s Home starts with a standard 17-month lease term. That means you’ll make 17 lease payments until you own the furniture you selected previously.
However, we’re all about flexibility and convenience. That’s why we also offer early purchase options for our buyers. Specifically, you can own your item(s) early through our same as cash 90 days program. In a nutshell, you pay exactly the same amount as you would if you purchased the item upfront within 90 days.
This option is very similar to a BNPL loan. Becca’s Home retains ownership throughout the 90-day timeframe. Then you own the item once you make the three required payments.
If you start with a 17-month lease-to-own purchase instead, you can pay off your lease early and save on the remaining total cost at any point.
Bottom line: be sure to read the fine print before signing any BNPL loan or agreeing to any financing option. Certain furniture stores will certainly be better choices for you and your overall budget.
What Are the Benefits of Buying Now and Paying Later?
BNPL financing has become more popular in recent years because there are lots of benefits to shopping this way. Let’s break down some of the clearest benefits in detail.
Buy Now Pay Later Helps You Manage Big Purchases
BNPL financing helps you manage big purchases without having to either save up a ton of money beforehand or completely empty your wallet in the process.
Say that you just moved into a new home and it’s a lot bigger than your former apartment. You need a bunch of furniture so you can properly fill the space and so it doesn’t feel empty. However, moving took a lot of money out of your budget and you don’t have over $1000 to completely furnish your new house.
Buy now pay later financing will allow you to make a big furniture purchase within your timeframe without completely breaking the bank. With a BNPL loan, you can purchase a new bed or couch for a relatively cheap price upfront, then make the same payment three or four more times to finish paying for it.
All the while, you can increase your credit score (provided you make payments on time and in full) and enjoy the furniture you selected. You don’t lose most of your cash and you save yourself enough to pay for daily expenses, like groceries and gas. Seen in this light, it’s clear why BNPL financing is very popular among folks with limited budgets.
Buy Now Pay Later Can Make Furnishing Your Home Easier
As noted from the above example, buy now pay later financing will make furnishing a home much easier no matter how much space you need to fill. For instance, say that you have a big living room, dining room, and patio that need to be filled with multiple furniture pieces. You need tons of new furniture pieces for full room sets.
While it may not be the best idea to take out multiple short-term BNPL loans simultaneously, one BNPL loan for several furniture items could be a great idea. That way, you can furnish a room almost instantly without having to put its full set of furniture together piecemeal over several months and years. You can do this even with bad credit (though keep in mind you may not get free shipping!).
You can get a bed, dresser, bedside table, sofas, tables, chairs, and more all at once. Then you can simply pay off some of the remaining balance for the short-term loan each time you get a paycheck. BNPL financing is certainly very popular among individuals who recently moved or those who upgraded into homes with much more interior space.
Buy Now Pay Later Can Build Your Credit Score
On top of all this, BNPL financing can seriously boost your credit score if you use it responsibly. Taking out responsible loans and lines of credit are some of the best ways to build your credit score over time.
In the same way, BNPL loans can improve your credit by giving you several recurring opportunities to pay off an expected loan bill. As you make each loan payment, that information gets reported to the credit bureaus. They’ll take this information and improve your credit score as a result.
BNPL financing is also advantageous for building your credit because you can get started with it without needing a high credit score in the first place. Sure, taking out a personal loan and paying it off over time can also improve your credit. But many people find it hard to be approved for a loan if they don’t have a credit score to speak of.
Many BNPL loans don’t require a credit score or great credit for you to qualify. In this way, buy now pay later financing is an accessible way to improve credit for young individuals or those recovering from bankruptcy.
Since BNPL financing doesn’t let you continue to take out more money, these loans can also be great if you have trouble with credit cards. Credit cards can be good for improving your credit with time, but they require a lot of personal responsibility. After all, their lines of credit can be used for just about anything until you hit the limit.
With BNPL loans, you can’t make more purchases with your loan account until you pay off your first purchase. So buy now pay later financing can be the smarter choice if you want to learn and practice good money habits.
The Bottom Line on Buy Now Pay Later
So, should you use buy now pay later financing? In many cases, it could be a convenient choice. However, you should always make sure not to sign up for a buy now pay later short-term loan that will cost you more in the long run.
That’s why you should turn to Becca’s Home for all of your furniture financing needs. Instead of using credit, our system has you lease the best furniture through us, then purchase it over time. Alternatively, you can purchase your furniture early or check out our 90 day same as cash option for a buy now pay later-style financing deal. Contact us today to learn more!
Sources:
Credit Reports and Scores | USAGov.
