Over the past several years, a new payment option known as “buy now, pay later” has become increasingly popular among consumers. Instead of paying via debit or credit card, BNPL gives shoppers the opportunity to quickly take on small loans that are typically paid off in four interest-free installments over the course of six weeks.
Top Buy Now, Pay Later Companies
- Klarna
- Affirm
- Afterpay
- PayPal Pay Later
- Sezzle
- Zip
- Splitit
- Perpay
- Shop Pay Installments
- Sunbit
Installment financing isn’t entirely new. After all, retailers have been offering layaway payments since the 1930s. But unlike layaway, buyers using BNPL can obtain a product immediately, before it’s paid off. And unlike a credit card, BNPL services typically don’t charge interest or perform a hard credit check.
BNPL really took off during the Covid-19 pandemic, and the market has only gotten bigger. The total transaction value of these loans has increased roughly 20 percent per year since 2021, according to the Federal Reserve Bank of Richmond, reaching an estimated $70 billion in 2025. More than half of Americans have used short-term installment plans for online purchases, according to a 2026 Gallup poll, and 10 percent say they use them frequently. Lower-income respondents were more likely to use BNPL products frequently or occasionally than middle- or higher-income individuals.
But as BNPL has continued to grow, so too have questions about whether this new tool democratizes credit for low-income populations or exacerbates financial vulnerabilities — a debate that regulators are only just beginning to settle.
What Are Buy Now, Pay Later (BNPL) Companies?
Buy now, pay later, or BNPL, companies provide point-of-sale financing options to consumers who want to purchase goods or services with small amounts of money over time instead of one lump sum. The most common structure is the “Pay in 4” model, where consumers make four interest-free payments: one at checkout and three more every two weeks. Some services also offer longer-term financing for bigger purchases, which come with interest charges similar to a credit card.
Unlike other creditors or lenders, BNPL companies can quickly originate a small loan without a hard credit check, and consumers don’t need a credit history or a good credit score to qualify. For shoppers who use buy now, pay later options, spreading payments over multiple installments makes purchases feel less expensive and more attainable. It’s particularly attractive for younger generations or lower-income individuals who want to avoid paying high interest rates through a credit card.
Buy now, pay later was initially introduced as a way to make discretionary e-commerce purchases like clothes, electronics and beauty products more affordable. But the market has quickly expanded into more essential items as well, like groceries and transactions at brick-and-mortar retailers.
How the BNPL Business Model Works
When a consumer chooses to buy now and pay later, the BNPL company typically pays the merchant the full purchase amount upfront, and then it collects repayment from the consumer in installments over time.
In exchange for taking on this risk, the BNPL company receives a fee from the merchant. Those fees typically cost between 4 percent and 6 percent, although they can surge up to 9 percent. That’s a pricy premium compared to credit card fees, which typically range from 1.5 percent to 3.5 percent. BNPL companies also charge merchants a fixed transaction fee, typically around 30 cents.
But merchants agree to pay these high fees to sell products to customers who might not have completed the transaction otherwise. One study found that businesses that offered these products saw a 14 percent increase in revenue, both from increased conversions and higher order value.
While retailers are their primary revenue source, BNPL companies also make money from users through late fees, or by charging interest on longer-term loans. BNPL companies try to prevent delinquencies and defaults by running a soft credit check, although it is quicker and less thorough than the hard credit check a lender might run for a credit card application.
Another emerging revenue source for BNPL companies is digital advertising. For example, by tapping into its consumer purchase data, Klarna helps merchants reach high-intent customers through advertising, its proprietary search engine and affiliate marketing.
Top Buy Now, Pay Later Companies
Klarna is the largest BNPL company in the world, with more than 119 million customers and 1 million participating merchants. In addition to its interest-free Pay in 4 product, the Swedish company allows users to pay within 30 days or spread payments over three to 24 months with interest. Klarna is available in online checkouts, through mobile wallets or through the Klarna app and Klarna Card.
Affirm, the largest U.S.-based BNPL provider, is used by more than 50 million consumers and hundreds of thousands of merchants. Unlike other providers, Affirm does not charge any fees. In addition to its Pay in 4 interest-free option, the company allows its customers to pay over a longer term with interest charges. Affirm is embedded in Amazon’s checkout, and it’s also available in mobile wallets, the Affirm app or the Affirm Card. It is also the only major BNPL company that reports to credit bureaus, which helps users build credit when they pay on time.
Afterpay is another leading BNPL provider, with millions of customers and hundreds of thousands of partnering merchants. After Afterpay was acquired by Block (formerly Square) in 2022, all of its services were integrated into the digital payments giant, creating a one-stop-shop for both retailers and their customers. The company offers an interest-free Pay in 4 option, as well as longer-term plans that charge interest. When users download the Afterpay Card and app, they can browse participating merchants who allow in-store purchases using BNPL.
PayPal is probably best known for its digital payments services, but it also allows users to buy now and pay later without late fees through its Pay Later feature. Users can pay in four, interest-free payments, or through monthly payments with interest charges. PayPal Pay Later can be used at the millions of merchants that accept PayPal, and shoppers can make in-store transactions by applying for a BNPL loan within the PayPal app.
Sezzle allows users to pay in two payments, four payments or over longer periods with interest charges. It can be used in e-commerce transactions or in-store purchases using a virtual card. And unlike other BNPL companies, Sezzle allows users to opt-in to credit reporting if they want to build their credit history.
Zip allows users to pay in two, four or eight installments — either online using the Zip app, or in-store by creating a virtual card in the app. With millions of customers and more than 85,000 participating merchants, Zip allows its users to change payment dates, earn cashback and qualify for increased spending limits. Zip, an Australian company ,expanded into the United States by acquiring another BNPL service, QuadPay in 2020.
Splitit offers a unique approach to BNPL for credit card users. Instead of applying for a new loan or opening a new line of credit, Splitit allows them to leverage the credit on their existing account to finance their purchase. They can then choose to make monthly or bi-weekly installments on that purchase without paying additional interest or losing out on the perks from their credit card provider.
Perpay markets itself as a tool for people who want to improve their credit score. Users are granted up to $1,000 to spend on products in the PerPay Marketplace, and then they pay interest-free installments through automatic deductions from their linked payroll direct deposit. For $5 per month, Perpay+ users can have their data reported to the credit bureaus. According to the company, the program can boost users’ average credit scores by more than 30 points in the first year.
Shopify is an e-commerce platform that allows businesses to create their own online store, process payments and manage inventory. With Shop Pay Installments, these businesses — many of which are small, independent retailers — can offer BNPL services powered by Affirm. Customers can either pay through four interest-free installments or monthly financing plans that charge interest. The company said their BNPL financing leads to higher average order values and fewer abandoned carts.
Sunbit specializes in financing essential services, such as auto repairs, dental work, veterinary care and eyewear purchases. It’s offered by over 30,000 service locations, where consumers may feel overwhelmed by large, unexpected expenses. Users can divide their payments into three-month, six-month or one-year installment plans that charge interest. According to the company, 90 percent of applicants are approved for loans.
Risks and Regulations of BNPL
In the United States, BNPL companies operate in a sort of regulatory grey zone. And the rules of the game are still in the process of being written.
The industry argues that most of its services are not subject to the consumer protections outlined in the Truth in Lending Act, which governs how credit card companies resolve disputes, process refunds and disclose credit costs. While some BNPL services are regulated by the law, providers claim their popular Pay-in-4 services are exempt, as the law only applies to loans that charge finance fees or divide payments over more than four installments.
In 2024, the Consumer Financial Protection Bureau sought to close that loophole by classifying BNPL lenders as credit card issuers, but that ruling was rescinded a year later after President Donald Trump appointed new leadership to the agency.
In lieu of federal regulation, states have taken matters into their own hands. New York, for example, has adopted regulations that provide a licensing framework, prohibit excessive fees, protect consumer data, establish rules for dispute resolution and require transparency on credit reporting practices. California, meanwhile, classifies BNPL services as consumer loans, and in 2019, it sued four companies for issuing loans that violate the California Financing Law. Each of the companies ultimately settled their lawsuits, and they had to get a license, pay fines and refund the fees they collected.
BNPL companies also take differing approaches to reporting consumer information to credit bureaus. While not required of credit card companies or any other lender, reporting has become standard practice in the credit card industry, as it allows lenders to make smarter underwriting decisions. Affirm is hoping the BNPL sector will do the same, as it has become the first to report all of its loans to the credit bureau. In 2025, the credit scoring company FICO began to incorporate BNPL data into some of its scores. But these scores depend on data from credit bureaus, and major players like Klarna and Afterpay don’t provide data for their four-installment loans, saying they need assurances that customers won’t be penalized for using their products.
As a result, lenders would have no way of knowing if an applicant had numerous outstanding BNPL loans from multiple providers. Nearly two-thirds of BNPL borrowers originated multiple loans at the same time, according to the Consumer Financial Protection Bureau, and one-third took out BNPL loans from multiple providers. Without knowing about these undisclosed “phantom debts,” lenders could offer an applicant a large loan they may not be able to pay back.
While the BNPL industry’s self-reported delinquency rates are less than those of the credit card industry, some economists worry undisclosed debts could spill over into other consumer credit products. In addition to the underwriting risks posed by phantom debt, BNPL users are typically required to set up automatic payments, which means they could pay off a BNPL loan at the expense of falling delinquent on a credit card bill, student loan or car payment.
Frequently Asked Questions
What is a buy now, pay later company?
A buy now, pay later company is a lender that finances purchases at the point of sale, allowing consumers to split the cost into installments with no interest charged. Unlike credit cards, BNPL approval is nearly instant, requires no hard credit inquiry and is available to borrowers who may not qualify for traditional credit products.
How do buy now, pay later companies make money?
BNPL companies’ primary revenue source is their merchant fee, which retailers pay in exchange for higher conversion rates and larger average orders. Many providers supplement this by charging users late fees and interest on longer-term installment plans. Klarna specifically also makes money through digital advertising generated from consumer purchase data.
Does using buy now, pay later affect your credit score?
It depends on the provider and the plan. Most standard Pay in 4 loans don’t appear on your credit report, meaning on-time payments won’t build credit and missed payments won’t directly damage your score. Some providers, including Affirm and Sezzle, do offer optional or automatic credit bureau reporting. Starting in fall 2026, FICO’s updated scoring models will begin incorporating BNPL data, which will change this calculus significantly for lenders who report.
Are buy now pay later companies regulated?
Yes, but not consistently. The Consumer Financial Protection Bureau rescinded its federal oversight rule in May 2025, leaving regulation up to individual states. For example, New York imposes licensing requirements and product restrictions on BNPL providers, while other states like California have made the companies comply with existing regulations.
