Buy Now, Pay Later: How BNPL Works & Top Apps (2026)

This article is for informational purposes only and shouldn’t be considered financial advice.

Buy now, pay later (BNPL) platforms let customers split a purchase into a series of equal payments, sometimes without interest. The model is useful when a customer wants to buy an item but doesn’t have the funds in the moment, or would prefer to pay in installments. 

It’s an increasingly popular payment method: In 2025, the Federal Reserve found that 15% of adults had used BNPL in the previous year, up from 14% in 2023 and 10% in 2021. 

BNPL providers charge retailers to use the service, businesses should consider fees when choosing a provider. Common BNPL providers include Shop Pay Installments, Affirm, Klarna, and Afterpay.

Read on to learn more about how BNPL works, top service providers, and what to consider when choosing a provider for your business.

What is buy now, pay later (BNPL)?

A buy now, pay later (BNPL) plan is a point-of-sale (POS) loan that lets customers buy merchandise on credit without using a credit card, including pay-in-4 plans. 

BNPL providers include Shop Pay Installments from Shopify, Affirm, Afterpay, Sezzle, PayPal, and Klarna. In short, BNPL companies run an instant soft credit check on the customer that doesn’t affect their credit report, then approve a POS loan.

Customers repay the provider until the purchase is paid off. Some BNPL options charge interest, though interest-free pay-in-4 plans are the most common structure. Some providers charge late fees for missed payments, while others offset the interest charged to consumers with a fee they charge retailers.

How does buy now, pay later work?

Customers are presented with BNPL options at checkout. If a customer chooses the BNPL option, they receive payment terms from the provider, and complete payment by the due date. If a customer misses a payment, the provider may charge a late fee.

The BNPL process works in five steps:

1. A customer shops and starts checkout. The customer shops online, selects merchandise, and gets ready to pay.
2. The retailer’s BNPL provider shows the payment option. At checkout, the customer sees BNPL alongside other payment methods, such as a credit or debit card.
3. The BNPL provider runs a soft credit check. When the customer chooses BNPL, they enter personal details, such as their full address or Social Security number. The provider uses a soft credit check to assess repayment risk—this doesn’t affect a customer’s credit score, but missed or late payments can.
4. The BNPL provider charges the retailer a fee. The provider takes a percentage of the transaction amount before sending the remainder to the business. This fee works much like the processing fees retailers pay credit card companies.
5. The customer pays the balance over time. Some BNPL providers offer interest-free payments when customers pay the full balance within a short repayment window. Longer repayment plans may include interest, so customers pay less in total when they pay off the balance sooner.

Why offer buy now, pay later: Key benefits for retailers

There are a few reasons why store owners should consider offering BNPL payment options for their customers.

Customers expect it

In a 2025 BNPL study, Numerator found that 72% of Americans said they planned to use BNPL in the coming year. Interest was higher among Gen Z at 82% and millennials at 77%, but the survey also found that half of Americans have already used BNPL. Offering BNPL can help your business appeal to new, younger customers who prefer the flexibility of paying over time. 

Bigger baskets and fewer abandoned carts

BNPL allows customers to buy things they otherwise wouldn’t be able to afford or want to pay for all at once. This can allow them to purchase more expensive products, upgrade to premium versions, or add accessories and add-ons, leading to higher average order value (AOV) for your business. Affirm reported that their partners saw a 70% lift in average cart sizes in 2024, and nearly 30% fewer abandoned carts compared to other BNPL providers.

Offering BNPL can give sellers a competitive edge in the market. In industries where multiple sellers offer similar products, providing flexible payment options can differentiate one business from another.

Minimal default risk for store owners

When a customer is approved for BNPL, the business is paid by the provider upfront and protected against fraud and customer payment risk. 

BNPL works more like another payment method than an in-house financing program. The seller doesn’t manage repayment schedules, chase missed installments, or carry customer receivables.

Without a BNPL provider, a business that offers payment plans would need to handle underwriting, collections, fraud exposure, and default risk. BNPL gives store owners payment-plan flexibility without making them lenders, though provider fees, refund rules, chargebacks, and dispute processes still apply.

Appeal to credit-constrained shoppers

BNPL is an equalizer for shoppers without credit cards—meaning you have a larger pool of potential buyers. A BNPL service offers many of the same benefits as a credit card for consumers, but for comparatively smaller, individual purchases.

A 2025 Journal of Consumer Affairs article citing Federal Reserve survey data and credit records reported that 57% of BNPL users used BNPL out of necessity. Offering BNPL opens the door to a wider audience and offers a practical alternative for those who choose to move away from legacy credit systems.

Works with major ecommerce platforms and POS systems

Many BNPL providers offer simple integration options for store owners. This makes it easy to quickly add the payment option to their checkout process without significant investment or technical expertise. Shop Pay Installments, for example, works seamlessly with the Shopify suite of business tools. 

Drawbacks of buy now, pay later

BNPL can look low-cost and simple at checkout, but recent data shows four recurring drawbacks.

Fees can still add up 

A 2025 Consumer Financial Protection Bureau (CFPB) market report found that BNPL lenders charged late fees on 4.1% of loans in 2023. BNPL may be marketed as interest-free, but missed payments can still cost shoppers more.

Customers may take on more debt than they realize 

The CFPB also found that about 63% of BNPL borrowers had multiple simultaneous BNPL loans at some point in 2021 and 2022, and 33% had simultaneous loans across multiple BNPL firms. Each purchase may feel small, but multiple installment plans can make a customer’s total debt harder to track.

Returns and refunds can be more complicated 

A 2025 Bankrate survey found that 14% of BNPL users had difficulties with returns or refunds. Returns can be messier when the business, BNPL lender, refund timing, and remaining installment balance all have to line up.

Credit reporting is still inconsistent 

The CFPB reported that BNPL lenders often don’t report BNPL loans and payment history to the three nationwide credit reporting companies, which gives other lenders limited visibility into a customer’s BNPL debt. 

Best buy now, pay later apps: 6 top BNPL providers compared

1. Shop Pay Installments
2. Affirm
3. Afterpay
4. Sezzle
5. PayPal Pay Later
6. Klarna

Retailers favor buy-now, pay-later services because they’ve been shown to boost overall sales volume. Here are six common options.

1. Shop Pay Installments

Shopify integrates Shop Pay Installments, in partnership with Affirm, into its platform. Eligible Shopify sellers can use Shop Pay Installments to let customers pay for purchases over time. The service is currently available to sellers in the US, Canada, and the UK.

To check your eligibility, log in to your Shopify admin and go to Settings > Payments. Click Manage under Shop Pay Installments. If you’re eligible for the premium package, you’ll have a chance to review the financing options. To activate, click “Select premium package” to accept the premium financing options on offer.

To activate Shop Pay Installments on your Shopify store, do the following:

1. From your Shopify admin, go to Settings > Payments.
2. In the Shopify Payments section, click Manage.
3. In the Shop Pay section, check Shop Pay Installments, and then click Save.

You can also use Shop Pay Installments with Shopify POS for in-person transactions. The purchasing power feature lets customers check their eligibility and view installment options when cart value is at least $150. 

Best features:

• Complete online store and POS integration for online and in-person sales
• Purchasing power banners for product and cart pages (US only)
• No cost to activate Shop Pay Installments
• Payments are disbursed to sellers in one to three business days.\

Pros:

• Integrates with Shopify stores and POS systems
• Gives customers installment payment options at checkout
• Lets sellers offer installments to Shop Pay users

Cons:

• Works only with Shopify

Pricing: If you choose Shopify as your commerce platform, you can use Shop Pay Installments to let customers pay in one of three ways, depending on the transaction amount:

1. For orders from $35 to $50: Customers pay in two biweekly, interest-free payments.
2. For orders from $50 to $999.99: Customers pay four biweekly, interest-free payments.
3. For orders from $150 to $30,000: Customers make monthly payments, which are interest-bearing, from 0% to 36% annual percentage rate (APR). These may be paid in three, six, 12, 18, or 24 months, depending on the purchase amount.

2. Affirm

Affirm is offered through major retailers and payment experiences, including Amazon Pay and Target, but purchase limits vary by business and customer eligibility. Target lists Affirm availability for eligible items totaling $50 to $25,000. Amazon Pay says Affirm isn’t available for cart values under $50.

Affirm Pay in 4 is 0% APR; other Affirm payment options can range from 0% to 36% APR, depending on credit, eligibility, purchase amount, and the business.

Features:

• Upfront payments to business in one to three business days
• Flexible payment options
• Marketing support for partners

Pros:

• Integration with ecommerce platforms like Shopify
• Available in both the US and Canada

Cons:

• Only available for businesses that sell directly to consumers online or have an AOV of at least $50

Pricing: Affirm business pricing is based on a merchant discount rate plus a transaction fee. Specific financing program fees are shown after creating a merchant bank account or in the merchant agreement.

3. Afterpay

Afterpay uses smart/estimated spending limits, payment reminders, and capped late fees to encourage responsible spending. New customers are limited to lower spending caps and can only raise their limits through consistent on-time payments.

Afterpay Pay in 4 is interest-free when customers pay on time, but late fees can apply. Afterpay’s Pay Monthly product is separate—it can carry 0% to 35.99% APR and does not charge late fees or origination fees.

Features:

• Easy integration with Shopify
• Merchant portal with data reports
• No interest fees

Pros:

• Sellers are paid in full, less fees, for online transactions
• Lower credit and fraud risk

Cons:

• Afterpay supports in-store payments through the Afterpay Card in the mobile app

Pricing: Afterpay’s fees include a fixed fee plus a percentage amount, and the exact fee differs for online versus in-store transactions and is detailed in the merchant agreement.

4. Sezzle

Qualifying Sezzle purchases can be rescheduled, depending on state rules. Customers can move payments up to two weeks from the original due date, but not beyond the next installment, according to company Help docs.

For Sezzle Pay in 4, the down payment is usually 25%, with the remaining three installments due every two weeks. Sezzle also offers other plans, including Pay in 5, Pay in 4, Pay in 2, Pay in Full, and long-term financing, so 25% down is not universal.

Features:

• Supports recurring payments for saved-payment purchases such as subscriptions or auto-refills
• Consumers can build credit score via Sezzle Up
• Payment rescheduling

Pros:

• Accesses a network of banks with borrower-friendly credit approvals
• Payment flexibility

Cons:

• Higher-than-average transaction fees for sellers

Pricing: Includes an order processing fee made up of a set percentage plus a small processing fee, plus a $15 monthly minimum account management fee for businesses processing less than $300 in 30 days. 

5. PayPal Pay Later

PayPal is an online payment system, a person-to-person cash transfer app, and a BNPL lender. Its signature lending product, PayPal Pay Later, has two options:

• Pay in 4, which breaks transactions into four scheduled payments. PayPal limits this service to purchases between $30 and $1,500.
• Pay Monthlylets eligible US customers finance qualifying purchases from $49 to $10,000 over three, six, 12, or 24 monthly payments.

Features:

• Automatically promote the most relevant BNPL option based on shopper behavior
• Access to a massive user base
• Immediate payment upfront

Pros:

• Easy to set up
• Brand recognition and trust

Cons:

• Only two repayment options

Pricing: Pay Later pricing is 4.99% + 49¢ per domestic transaction, with custom pricing available for higher-volume businesses.

6. Klarna

Klarna uses a proprietary metric called Purchase Power instead of strict borrowing limits. It’s an estimate of how much a shopper can spend based on factors such as Klarna history, current balance, and more.

Klarna Pay in 4, Pay in 30, and Pay in full are interest-free when paid on time. Klarna Pay over time can run three to 24 months, and US APRs can range from 0% to 35.99%.

Features:

• Browser extension available for consumers
• Purchase a Power estimate
• Loyalty cards

Pros:

• Various payment options for consumers
• Available for online and in-person shopping

Cons:

• Approvals and Purchase Power depend on eligibility checks

Pricing: Klarna fees vary depending on your business profile and current market.

6 things to consider when looking for a BNPL provider

When searching for a BNPL provider for your business, consider the following:

• Integration and compatibility with your ecommerce platform. Shop Pay Installments, for example, offers customers the option to pay for their order in installments at checkout, both online and in store, thanks to seamless integration to your Shopify site and POS.
• Borrowing amount. Make sure the BNPL provider will lend enough for your customers to purchase your products—and also that products aren’t priced too low to be eligible for BNPL. 
• Funds disbursement. You don’t want to wait weeks to receive the funds from a BNPL sale. After you’ve captured the payment for an order placed using Shop Pay Installments, for example, you’ll receive full payment in one to three business days.
• Customer experience. Look for a provider that offers a user-friendly interface, transparent terms and conditions, and responsive customer support to address any issues or concerns. 
• Flexibility and customization. Choose a BNPL provider that offers flexibility in terms of payment options, repayment terms, and customization options to accommodate the unique needs of your business and your target audience.
• Data analytics and insights. Look for reporting tools to track key metrics. You can view analytics for Shop Pay Installments and export the data as a CSV spreadsheet.

How to promote buy now, pay later at your store

Some BNPL providers offer assets to help guide you through your promotion strategy. If you use Shop Pay Installments, you can take advantage of a complete marketing toolkit, compliance guidelines, approved messaging, brand assets, and usage guidelines to make sure you’re using the correct disclosures and wording.

Add a banner to your online store

Promote your BNPL offering on your website with an announcement banner. Highlight the program’s benefits and consider linking to an FAQ page to answer common questions. Add the banner to your website’s home page, product pages, and your cart page.

For example, beauty company RevAir reminds customers with a website banner that they can use Shop Pay to purchase its products for as little as $31 per month.

With Shop Pay Installments, store owners can add product page banners below product prices and cart page banners below the subtotal to provide customers with upfront information regarding their estimated loan amounts before they proceed to checkout.

Include it in marketing emails

Use email marketing to share your BNPL option with customers. If you use Shop Pay Installments, for example, you can promote it through email marketing and paid media. Use the pre-loaded Shopify Messaging template, available if you have the Shopify Messaging app installed on your site.

Some BNPL providers have additional marketing and distribution channels you can take advantage of. For example, the Shop app can show inventory to shoppers, allowing them to quickly see which businesses accept BNPL payments. This is a great way to tap into a new audience and sales channel.

Add retail signage

Install signage at strategic points to help drive awareness of BNPL as customers navigate through your store. You can put signage at the store entrance, by the checkout, near big-ticket items, next to best sellers, and in fitting rooms.

Shop Pay Installments provides print-ready files for 8-inch by 10-inch signs, six-inch by six-inch tent cards, and four-inch by six-inch postcards for customers so you don’t even have to design the creative yourself.

Buy now, pay later alternatives: layaway, credit cards, and more

BNPL isn’t available to every business. These alternatives work for both store owners and shoppers:

1. Layaway. Customers pay the full amount in installments before receiving the product.
2. Personal loans. Shoppers who can’t afford a purchase and lack access to credit cards can use personal loans they acquire themselves.
3. Customer loyalty programs. These programs offer rewards for purchases. Shoppers can use loyalty points to pay for items.
4. Store credit cards. Major retailers have branded credit cards. While this isn’t an option for small businesses, it’s an option to consider as you grow.