Last week we discussed the pros and cons of “buy now, pay later” apps. This week we examine the major buy now, pay later (BNPL) apps and the important questions individuals need to ask to ensure they pick the app that best fits their needs and priorities.
How to Evaluate BNPL Apps
There are a number of factors that individuals should weigh when selecting a BMPL app. Here are some questions to ask.
- What is the repayment schedule? Some providers may offer loans that extend payments over as long as 12 to 48 months, while others may require repayment within a one- to six-month period.
- Is rescheduling repayments permitted?
- What is their maximum loan amount? Most BNPL providers have a ceiling on the amount they lend. Be sure it’s sufficient to fund the contemplated purchase, especially if you have little to no cash to make an upfront payment.
- Is a down payment required? A down payment will reduce future repayment amounts as well as save interest costs if the loan charges interest, but a down payment may not be realistic in certain situations.
- Is the interest charged at a simple or compounded rate? Simple interest is less costly than being charged interest on interest.
- What are the customer satisfaction rates? Make sure that customer reviews are generally favorable, especially with regard to responding to errors or disputes.
- Are late fees and/or penalties assessed on late payments? How much are they?
- Is the loan approval process fast? When making an emergency purchase, waiting for a loan approval can be inconvenient.
- Is the app accepted at brick-and-mortar stores? Which ones?
- Does the app offer a rewards program that provides credits toward future purchases?
Comparison of Major BNPL Apps
There are a handful of BNPL app leaders, including Affirm, Afterpay, Bread, Quadpay, Sezzle and Klarna. Here’s how several of them compare on some key considerations.
Loan Terms: Typically three, six or 12 months. Interest rates will vary, but are clearly disclosed before purchase.
Loan Amounts: Up to $17,500.
Down Payment: Generally none required.
Late Fees/Penalties: None
Loan Terms: Four payments over six weeks at zero interest.
Loan Amounts: Not all orders are approved for loans.
Down Payment: First installment payment due on purchase.
Late Fees/Penalties: Can be high, depending on the size of the purchase.
Loan Terms: Four interest-free payments or a loan for 12, 24, or 36 months at a rate depending on the term length.
Loan Amounts: May not be approved for full purchase amount.
Down Payment: None, unless a loan is not approved for full amount of purchase.
Late Fees/Penalties: None; interest accrues on unpaid balance.
Loan Terms: Four interest-free payments, pay in 30 days interest free, or 6-36 month financing.
Loan Amounts: Ranges from $1,000 (for four payment) to up to $10,000 when financing a purchase.
Down Payment: First installment due on purchase ((Four-pay option).
Late Fees/Penalties: Yes.
Like the introduction of the credit card, a BNPL provides a new purchase funding option for consumers, but it comes with the same dangers of potentially facilitating overspending and charging excessive interest and fees that raise the cost of consumer purchases.
Peter Mastrantuono is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Peter worked for over 30 years in the wealth management industry, focusing on retirement planning, investing, asset allocation and financial planning.
