07/01/2025
What is Buy Now Pay Later?
• Buy Now Pay Later (BNPL) is a relatively new version of lending that differs from its counterparts, credit cards and layaway, where consumers can make a single purchase at their favorite store, receive the products immediately, but make reoccurring payments on the item until it’s paid off. It was first started in the late 2000s but gained quick popularity in more recent years with credit card balances and interest rates increasing substantially. BNPL typically has a short financing period of 6–10 weeks (Klarna, Zip, AfterPay, Sezzle etc.), while other BNPL companies such as Affirm go as long as 24 months.
How does it differ from credit cards or layaway?
• You may remember the good ole’ days of layaway in the 90s and early 2000s… the excitement of getting your item when it was finally paid off! Well, with BNPL, you get that excitement and your item immediately. BNPL orders are treated like any other standard order, shipping out as soon as the consumer hits submit, and giving them instant gratification without having to pay full price upfront.
• The average credit card interest rate as of June 2025 is 23.99%, while BNPL’s typical “pay-in-four” plans are interest-free. Other companies, like Affirm, may charge interest rates up to 36% APR. The provider, consumer credit score, amount financed, and loan term can affect their interest rate. So it’s incredibly important for consumers to understand what they are agreeing to because they may be paying way more than someone using a credit card.
How does it affect a consumer’s credit?
• The golden question! BNPL has quickly become somewhat of a rebel in the credit reporting world. Companies like Klarna, Zip, Afterpay, Sezzle, etc. have so far been basically obsolete on credit reports, while long-term financing such as Affirm has occasionally reported to Experian only. This means consumers can take out large amounts of debt with little to no effect on their credit report.
• According to TransUnion, nearly 130 million consumers took out BNPL loans in the past year and most of it has been left off credit reports.
• The CFPB reported that the typical BNPL borrower is taking out more than 9 loans per year, and 63% of those consumers had multiple loans out at one time. They also reported that BNPL loans are most often used by consumers who are considered “Subprime” or “Deep Subprime” borrowers. This allows consumers who were denied for personal loans or credit cards to go into debt and, oftentimes, delinquency.
******HOW DOES IT AFFECT THE MORTGAGE BUYING PROCESS???
• Relative to the question above, many loan officers are facing issues with hidden monthly debts on a client’s bank statements that DO NOT report. These DEBTS have to be added to their assets and this changes debt to income calculations AND can cause purchase power or the AMOUNT they QUALIFY for to be affected sometimes turning what was an APPROVAL into a DENIAL and at Best causing lots of stress as Borrowers are grasping to get documentation from some of these companies and many times these debts have to be PAID off prior to closing.
• If the company does report to the credit bureaus, many consumers have found themselves with new late payments during the mortgage process. When the Mortgage Company requests documentation as they will the BUY NOW PAY LATER company will disclose any and all late payments and what happens Especially when their BNPL company offers no late fees, as they often do. This gives consumers the idea that it’s okay to miss a payment here and there. Late payments, as we all know, can affect a lender’s ability to close a loan.
With all that being said, it is extra important nowadays for consumers to understand the debt they are taking out, how to properly budget, and how to monitor their credit for new accounts that may affect their score.
If you are applying for a MORTGAGE LOAN #1 AVOID these companies and BUYING NOW/PAYING LATER altogether #2 if you have these types of accounts disclose them to your Mortgage Lender so that documentation can be requested upfront and lastly #3 start preparing to pay those balances off so that they do not affect the amount of home you will QUALIFY for!!!
For additional information or if you have questions please give me a call/text/email/PM
#3343995437
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