Today, when shopping online or in stores, consumers increasingly have a new method of payment. Buy Now, Pay Later (BNPL) allows them to split their purchases into four to six installments, often without interest charges. It is estimated that 60% of Americans have used a BNPL service at least once, according to a survey by C + R Research. Which raises an important question: is buy now, pay later replacing the traditional layaway? While these point-of-sale installment loans share some commonalities with layaway, they also differ in important ways.
Key points to remember
- Buy Now, Pay Later financing is a type of short-term loan that allows buyers to split their payments into four to six installments, often without interest.
- Layaway also allows buyers to pay over time, but they will not receive the items they purchase until they have made all payments.
- Neither buy now, pay later, nor set aside may require a credit check, making it an option for consumers with poor or no credit.
Buy now, pay later: how it works
Buying now, paying later is a short-term financing option. When a consumer uses Buy Now, Pay Later to make a purchase online or in a store, they are accepting a short-term loan. These point-of-sale installment loans are offered through various platforms, including:
Buy Now, Pay Later, loans typically require buyers to make an upfront payment at the time of purchase and then pay off the balance in three or more installments. Many buy now, pay later services charge no interest on these loans, and they often don’t need a serious credit check, or in some cases a credit check, to qualify.
Point-of-sale installment loans are typically used to make relatively small purchases, but they can add up over time. The average consumer with an unpaid purchase now, pays a debt later owes $ 883, and makes payments for four purchases. In terms of credit limits and how much it is possible to spend using a point-of-sale installment loan, this is usually determined by the store and platform buy now, pay later.
PayPal and some credit card companies, including American Express, have also started offering an installment payment option to eligible buyers.
How the layaway works
Layaway is a payment plan that stores can offer to buyers. Most layaway plans work the same:
- You choose the items you want to buy
- You deposit a deposit on the total cost of these items
- You then make payments over time on the balance owed
- After you pay the full balance, you can get the items you bought
Stores that offer layaway plans may charge a fee to use them, although you usually won’t pay any interest since it’s not a loan. Buyers who use the layaway do not borrow money; instead, they make payments on the items the store holds for them.
Some stores only offer layaway plans at certain times of the year, such as the fourth quarter leading up to the holiday season.
Buy now, pay later Pros and cons
Buying now, paying later can have both advantages and disadvantages for buyers. On the benefit side, these plans may require no interest payments. That’s a plus over buying with a credit card that likely has a double-digit annual percentage rate (APR).
Point-of-sale installment loans may also be available to consumers who do not qualify for credit cards or other loans, due to their credit history or lack of it. Afterpay, for example, does not require a credit check to qualify.
In terms of the downside, buying now, paying later could have a negative impact on your credit if a point-of-sale installment loan is not repaid. A BNPL platform can report overdue accounts to credit bureaus or transfer overdue accounts to a collection agent.
There is also the possibility of overspending. According to the C + R Research survey, 57% of BNPL users said they regret a purchase with a point-of-sale installment loan because the item was too expensive. Overall, 66% of users who buy now and pay later say it’s a risky way to pay.
And while the number of retailers who agree to buy now, pay later increases, not all stores have signed up. So you may not be able to use it at all, depending on where you shop.
Before using a Buy It Now service, pay later, check the fine print on late payments, late fees, and credit reports to see what the consequences might be if you fall behind.
Advantages and disadvantages of the layaway plan
Like buy now, pay later, layaway may not require a credit check, making it a convenient option for some consumers. But unlike BNPL, which often divides payments into four installments that are due within a relatively short period of time, layaway plans can offer more time to pay. For example, you might have two to three months, or more, to pay off the entire balance.
Plus, a layaway plan won’t damage your credit score if you’re unable to make the payments. Instead, you can cancel the plan and, depending on the store, often get your deposit and past payments refunded, although cancellation fees may apply.
There are, however, a few caveats to keep in mind. First, when you use layaway, the merchandise you buy is only made available to you after you have paid in full. You may also be required to spend a minimum amount to use the layaway. And some items may be excluded from layaway purchases.
Layaway plans may only be available for purchases made in-store, not online.
Buy now, pay later for a layaway: which is better?
Buy-now and pay-after agreements and layaway plans give buyers time to pay for their purchases, often without interest charges. To know which one is better, the answer may depend on:
- When you want or need the items you buy
- How long do you need to pay them
With a Buy Now, Pay Later plan, you can get the items you buy right away. You will usually need to make your first payment for the plan as a deposit, but there is no waiting period to get the merchandise like there is with a layaway plan.
On the other hand, the layaway can give you more time to pay off than a BNPL loan. So which is best may ultimately depend on when and why you are making a purchase in the first place.
The bottom line
Buy now, pay later, and layaway plans each have their pros and cons for buyers, but both can be an affordable way to pay. However, if you have good credit and want to recoup some of what you spend in the form of miles, points, or cash, you may want to consider a rewards credit card instead.