“Buy now, pay later” loans — also known as point-of-sale loans — offer consumers the ability to pay off their purchases over a fixed period of time with installment payments typically due bi-weekly or monthly.
If you’ve shopped on the websites of Target, Walmart, Sephora or ASOS recently, you’ve probably noticed the BNPL option whenever you get to the checkout page. Square’s recent acquisition of one popular BNPL provider, Australia-based AfterPay, for nearly $30 billion, points to the growing popularity of BNPL providers. In fact, a recent report by CB Insights predicts that the industry will grow 10 to 15 times its current size by 2025.
Depending on your loan provider, taking out a POS loan can either increase, decrease or have no impact at all on your credit score. Some of the most popular POS loan providers — AfterPay, Affirm and Klarna — report some loans to the credit bureaus while others don’t.
Affirm is one BNPL provider that does report information to Experian on some loans. It doesn’t report loans with a 0% APR and four biweekly payments or loans where people were given the option of a three-month payment term with 0% APR. For other Affirm loans, the entire loan history is reported to Experian.
AfterPay performs no credit check at all, making it a solid option for people who have poor or bad credit and have a hard time securing a loan otherwise (it also won’t improve your credit score). It doesn’t report loans to the credit bureaus.
Klarna will perform a soft credit check if you’re taking out a ‘Pay in 4’ loan or a ‘Pay in 30 days’ loan, and you’ll face a hard inquiry if you sign up for long-term Klarna financing. With longer loans, it does report late payments/delinquent accounts to the credit bureaus.
Ultimately, we think everyone should do their homework regarding these loans. The companies are positioning themselves to be the wave of the very near future so it’s wise to pay close attention to any gimmicks.