Date Posted: 
Tuesday, December 20, 2022

(En Español)

Many websites currently offer a buy now, pay later option at checkout.

Although buy now, pay later may sound similar to traditional layaway, credit cards or other loans, there are distinct differences.

It’s essential to understand the benefits and risks that come with buy now, pay later (or any financial product) before making your next purchase.

How Do Buy Now, Pay Later Loans Work?

Buy now, pay later is a type of installment loan – like a car or other personal loan.

Buy now, pay later arrangements often have a fixed repayment schedule — generally several weeks or months. You're told upfront what you'll need to pay each time, and it's usually the same amount. However, if you miss a payment or pay late, there is often a fee.

Things to Consider Before Using Buy Now, Pay Later

  • Buy now, pay later loans currently lack the consumer protections that apply to credit cards
    For example, buy now, pay later companies don’t offer the same protections as credit cards when there is a problem with what you purchased, or it’s a scam.

    Returning products bought with buy now, pay later can also sometimes be complicated. Be sure to read and understand the merchant’s specific return policies and how that impacts your payment agreement.

    Credit card companies will also investigate disputed charges. Buy now pay later companies may not.

  • Buy now, pay later can carry late fees
    Most buy now, pay later companies charge late fees if you miss a payment. In addition, you could be blocked from future purchases until you make past payments and could even have your debt sent to a debt collection agency if you fail to repay.

    Because lenders have different fees and policies, it is important to carefully review the terms and conditions to understand your obligations BEFORE you agree to them and make a purchase.

  • After you purchase, your debit or credit card will be set up for auto debit
    When you purchase with buy now, pay later, you typically pay the first installment at the time of purchase via debit or credit card.

    After the first payment, the business now is ready to auto debit the second and subsequent payments from that account. 

    This is where managing your payments from multiple vendors can get tricky.  Some businesses may have other payment alternatives such as payment through their own online payment portal, or by phone.  But consumers may not get to make this choice; it depends on the business model of the vendor they use. 

    It's important to understand that if you use a credit card when signing up for buy now, pay later, you may end up paying interest if you don’t pay off the full amount on your credit card statement.

  • Understand how it can affect your credit
    Most buy now, pay later companies only require a soft credit check for approval, which doesn't affect your credit score. However, others may conduct a hard pull of your credit, which could knock a few points off your score and take time to build back up.

    If you are using buy now pay later to build your credit, understand that most buy now, pay later companies do not report to the credit bureaus. Therefore, using this service may not benefit your credit score – and may actually lower it due to the credit check.

    While often not reporting positive credit, companies may report to a credit report company if there is a late payment, which may harm your credit history. Be sure to research whether or not a buy now, pay later company reports to credit bureaus before using their service.

How To Protect Yourself

  • Check for a license
    In Washington State, many buy now, pay later plans are considered loans and providers may have a license with the Washington State Department of Financial Institutions. If you are unsure if a buy now, pay later company has a license, you can verify a license on the DFI website at
  • Make sure you can afford the payments
    Buying now and paying later can be a tempting payment option because it makes it an easy to buy something today – especially when we’re counting down the days to the holiday when we’re buying presents.  

    Take caution to future financial and mental health risks of taking on more than you can afford. Make sure you have a good sense of your financial situation and whether you can afford to make the payments, and avoid financial challenges in the New Year.

    If you need someone to talk to about your finances, consider reaching out to a local non-profit offering no cost financial counseling.

  • Speak up if you have been misled
    If you have used a buy now, pay later service and believe that you have been misled, treated unfairly, or charged unexpected fees, File a Complaint with the Washington State Department of Financial Institutions at

Bottom Line

While buy now, pay later services can be useful, they are still a type of credit and can come with risk.

By keeping track of your spending and knowing the agreements you are signing up for, you can make sure your shopping doesn’t cost you more than you expected.

Additional Resources

What is a buy now, pay later loan?
Information from the Consumer Financial Protection Bureau.