3 Affordable Alternatives to 'Buy Now, Pay Later' Schemes

Just a few short years ago, "buy now, pay later" (BNPL) services were generating a lot of excitement among retailers and consumers. Lots of BNPL companies like Affirm, Afterpay, and Klarna have popped up to partner with retailers to offer interest-free, flexible payments to customers. PayPal also got into the BNPL space with its new PayPal Credit and "Pay in 4" payment option. 

During the pandemic heyday of online shopping, the buy now, pay later movement quickly became a buzzworthy force in e-commerce. But more recently, there's been a bit of a BNPL backlash. Fewer people are using buy now, pay later. According to a survey by The Motley Fool Ascent, only 35% of Americans used a BNPL service in 2023. This marks the second straight year of decreasing BNPL usage, down from 50% in 2022 and 56% in 2021.  

Is buy now, pay later a good deal for people? The answer is complicated. These services claim to offer interest-free financing for people who might not otherwise qualify for credit. But buyer beware: There can be hidden costs and downsides to shopping with BNPL. 

Let's look at how BNPL works, why it might be a good deal (or not), and how to find affordable alternatives that can suit your budget and boost your credit. 

How buy now, pay later really works 

Buy now, pay later enables people to buy big-ticket items like electronics and dream vacations, or smaller-dollar purchases like clothes, shoes, and personal care products. The attraction of BNPL is that it lets people essentially borrow money without the traditional requirements and complexities of a bank loan or credit card. 

Instead of lines of credit, APR interest, and minimum monthly payments, BNPL offers people a simple way to buy the stuff they want today and pay it off in the future with just a few (ideally) easy-to-manage installments. And BNPL services don't require a hard credit check, so it can be easier for customers with less-than-perfect credit to get approved. 

When is BNPL a good deal? If you make all your payments on time and pay off your balance in full, BNPL can be a good deal. You're basically getting a short-term 0% interest loan, but without all the paperwork. If you use BNPL only to buy things you can afford, and you're strategically using it for flexible payments and better cash flow, then go ahead; use BNPL to your heart's content. 

When can BNPL have risks and downsides? If you don't make a payment on time, the buy now, pay later service can charge you late fees and deferred interest. These extra charges might add up to more than you would've owed with credit card interest. 

Another drawback of BNPL is that, unlike a credit card or traditional bank loan, it doesn't help you build credit. BNPL companies don't report your on-time payments to credit bureaus. With other types of credit products, your ongoing record of responsible financial behavior can help you establish a credit history and boost your credit score -- and save money on interest throughout your life.   

Affordable alternatives to buy now, pay later 

Let's look at a few other options that could be a better deal than buy now, pay later. We'll start with the options that typically require good credit. 

1. Personal loans 

If you need money to make a big purchase, and you don't already have a credit card, you might want to apply for a personal loan. Personal loans tend to have lower interest rates than credit card APRs. 

Some of the best personal loans have APRs as low as 5.20%, and loan amounts starting at $1,000. Yes, you'll owe interest. But the total cost of a personal loan might be lower -- and more predictable -- than the hidden costs of BNPL. And a personal loan can help you build credit.  

2. 0% interest credit cards 

If you have good credit, you could qualify for a special 0% APR credit card. These cards let you borrow money with zero interest for a certain length of time, such as 12 months. Some of the best 0% interest cards have even longer introductory periods, like the Wells Fargo Reflect® Card, which offers an exceptionally generous 0% intro APR, 21 months from account opening. 

And keep in mind that these cards charge zero interest, not deferred interest. If you don't pay off your entire balance before the 0% introductory period is up, you'll only get charged interest on your remaining balance -- not every dollar you borrowed from day one. This makes 0% APR credit cards a better deal than BNPL, typical 0% financing offered by retailers, and most store credit cards -- which can hit you with painful amounts of deferred interest if you don't pay off your full balance.  

3. Secured credit cards 

If you have less-than-perfect credit, or no credit history, it can be hard to get approved for a traditional credit card. But even with no credit, you still have another affordable alternative to BNPL. It's called a secured credit card. 

With a secured credit card, you put down a cash deposit, and then you can borrow up to that amount. Some of the best secured credit cards require deposits of as little as $200 -- so if you deposit $200, you now have a credit limit of $200. These secured credit cards can help you build credit, and many also offer traditional credit card rewards like 1%-3% cash back or car rental insurance. 

Bottom line: Even if you have poor credit or no credit history, you still have affordable alternatives to BNPL. You can also avoid costly fees, strengthen your personal finances, and put yourself in a better position for future success.