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Buy Now, Pay Later: how to use installment shopping responsibly

Digital options to postpone your payments and easily create monthly installment plans are here to stay. What do you need to know to use Buy Now, Pay Later (BNPL) services responsibly?

4 min read

Buy Now, Pay Later (BNPL) has taken the shopping world by storm, allowing you to easily shop online and pay in installments without getting approved for a bank loan or a credit card. You can even postpone your payments and extend the repayment period.

Not only is Buy Now, Pay Later a hit with online shoppers, but these services are also drawing attention in the tech world, thanks to high-profile European startups like Klarna.

But hang on — should you really be clicking on that "Pay in 30 days" button whenever you see it? 

In this guide, we're diving headfirst into installment shopping. We’ll look at how BNPL can empower your buying decisions if you use it responsibly — so you can say farewell to buyer's remorse and hello to strategic spending, without compromising your financial well-being.

What does Buy Now, Pay Later mean?

Buy Now, Pay Later is a major trend in financial tech, but the concept of consumer financing isn’t new. It’s a payment option that allows you to receive your products or services immediately, without having to pay the full amount up front. Instead, you can pay:

  • By invoice: After a certain period, usually 30 days after purchase
  • In installments: Splitting the total into several monthly payments, plus interest or fees

Invoices and installment payments have been around for a long time. So, what makes BNPL special? 

Advantages of BNPL

Unlike traditional installment payments, which might require a credit card, a loan, or even a larger installment amount, Buy Now, Pay Later lets you pay off smaller amounts with a single click. 

BNPL services also allow you to:

  • Customize payment schedules that align with your individual financial situation, such as your monthly payday
  • Quickly complete a transaction, often using a user-friendly interface and with minimal paperwork
  • Understand your repayment obligations better with clear and straightforward terms
  • Learn how to manage your finances and shop responsibly without financial strain

Some services also offer interest-free installment plans, making BNPL a cost-effective alternative to credit cards. So far, so good — but how exactly do these digital payment installments work?

How does Buy Now, Pay Later work?

The process is straightforward: Select the BNPL option at checkout when shopping online. (Don't forget to follow these tips to shop online safely). Then, you can usually choose between postponing the entire payment or dividing it into monthly installments. Payments are often automatically debited from your chosen account on specific dates until you clear your debt. 

Sometimes, you can extend your payment deadline again for a fee. But be careful: Late fees will apply if you don't pay on time!

BPNL at banks

With online banks like N26, you can choose to pay in installments even if you already completed the purchase. As soon as the payment shows up in your account, simply use your bank app to convert the transaction amount into monthly installments.

Many online shops and platforms work with banks to offer Buy Now, Pay Later installment purchases. Here’s how it works: You choose the installment payment option when shopping online. Then, the bank transfers the full purchase amount to the retailer, and you repay the bank in monthly installments by direct debit.

Buy Now, Pay Later providers

BNPL providers often have a range of terms, schedules, and perks tailored to different customer needs. From established leaders to emerging players, these are some providers you might come across when shopping online: 

Klarna

With Klarna, you can pay by instant transfer or in monthly installments. You can also pay by invoice up to 24 months after the purchase.

PayPal

With PayPal, you can pay for your purchase after 30 days. PayPal also offers installment payments with buyer protection with an annual interest rate.

Apple Pay Later

If you're an iPhone user, you can use Apple Pay Later to pay in installments without interest or fees.

N26

With N26 Installments, you can split purchases between €20 and €1,000 into monthly installments. The effective annual interest rate is between 8.99% to 19.49%, depending on your internal credit score. 

If you're unsure how the interest rates will affect your finances, use an interest calculator to assess if a Buy Now, Pay Later option is best for your budget.

What do you have to keep in mind when buying in installments?

A few key considerations can make all the difference when using BNPL options responsibly. First, always assess your budget to ensure you're comfortable with installment payments without putting pressure on your finances. And there are a few other things to consider: 

  • The installment payment model can lower your credit score because it’s technically a small loan.
  • There are often high-interest rates and hidden fees, which ultimately make your purchase more expensive.
  • If you don't pay on time, late fees will apply.
  • You can quickly lose track of your spending, which can lead to debt.

Always read the fine print to grasp the terms and conditions before committing to an installment plan. This way, you can use Buy Now, Pay Later to make the most of it! 

Installment payments at N26

At N26, we know how crucial financial flexibility is. That's why you can use N26 Installments payment to split purchases between €20 and €1000 that you made in the last four weeks. There are no setup, service, or penalty fees for N26 installment payments. Before you complete the payment, you’ll receive an overview of the effective annual interest rate and monthly installments. We also always send you a payment reminder so you don't miss a payment. With N26, you always have complete control over your finances.

FAQs

Is Buy Now, Pay Later a debt trap?

Although Buy Now, Pay Later is great for flexibility and immediate gratification, it can put you in a tight spot financially if you don't use it responsibly. Also, due to interest rates and fees, using BNPL can cost significantly more than paying immediately.

Does BNPL affect your credit score?

In short: It could. Many people don't realize it, but installment payments are a type of loan. That’s why buying in installments can affect your credit rating if you fall behind on your payments.

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