When shopping online or in stores these days, consumers increasingly have a new way to pay. Buy now, pay later (BNPL) allows them to split their purchases into four to six installment payments, often with no interest charges. An estimated 60% of Americans have used a BNPL service at least once, according to a survey by C+R Research. Which raises an important question: Is buy now, pay later a replacement for traditional layaway? While these point-of-sale installment loans share some things in common with layaway, they also differ in important ways.

Key Takeaways

  • Buy now, pay later financing is a type of short-term loan that allows shoppers to split their payments into four to six installments, often interest-free.
  • Layaway also allows shoppers to pay over time, but they won't receive the items they're buying until they've made all the payments.
  • Neither buy now, pay later nor layaway may require a credit check, making them an option for consumers with poor or no credit.

Buy Now, Pay Later: How It Works

Buy now, pay later is a short-term financing option. When a consumer uses buy now, pay later to make a purchase online or in a store they're agreeing to a short-term loan. These point-of-sale installment loans are offered by a variety of platforms, including:

Buy now, pay later loans generally require shoppers to make an initial payment at the time of purchase, then pay the remaining balance off in three or more installments. Many buy now, pay later services charge no interest on these loans, and they often don't require a hard credit check, or in some cases any credit check, to qualify.

Point-of-sale installment loans are typically used to make relatively small purchases, but they can add up over time. The average consumer with outstanding buy now, pay later debt owes $883 and is making payments toward four purchases. In terms of credit limits and how much it's possible to spend using a point-of-sale installment loan, that's typically determined by the store and the buy now, pay later platform.


PayPal and some credit card companies, including American Express, have also begun offering an installment payment option to eligible shoppers.

How Layaway Works

Layaway is a payment plan arrangement stores can offer to shoppers. Most layaway plans work the same way:

  • You choose which items you want to purchase
  • You put down a deposit against the total cost of those items
  • You then make payments over time against the balance due
  • Once you've paid the full balance, you're able to get the items you purchased

Stores that offer layaway plans may charge a fee to use them, though you typically won't pay any interest since this is not a loan. Shoppers who use layaway aren't borrowing money; instead, they're making payments on items the store is holding for them.


Some stores only offer layaway plans at certain times of the year, such as the fourth quarter leading up to the holiday season.

Buy Now, Pay Later Pros and Cons

Buy now, pay later can offer both advantages and disadvantages to shoppers. On the pro side, these plans may not require any interest payments at all. That's a plus compared to shopping with a credit card that probably has a double-digit annual percentage rate (APR).

Point-of-sale installment loans may also be available to consumers who don't qualify for credit cards or other loans, based on their credit history or lack of one. Afterpay, for example, doesn't require a credit check to qualify.

In terms of cons, buy now, pay later arrangements could negatively affect your credit if a point-of-sale installment loan goes unpaid. A BNPL platform can report delinquent accounts to the credit bureaus or transfer unpaid accounts to a debt collector.

There's also the potential to overspend. According to the C+R Research survey, 57% of BNPL users said they regretted making a purchase using a point-of-sale installment loan because the item was too expensive. Overall, 66% of buy now, pay later users say it's a risky way to pay.

And while the number of retailers that accept buy now, pay later is growing, not all stores have signed on. So you may not be able to use it at all, depending on where you shop.


Before using a buy now, pay later service, check the fine print on late payments, late fees, and credit reporting to see what the consequences could be if you fall behind.

Layaway Plan Pros and Cons

Like buy now, pay later, layaway may not require a credit check, making it a practical option for some consumers. But unlike BNPL, which often breaks payments into four installments that are due in a relatively short time frame, layaway plans can offer more time to pay . For instance, you might have two to three months, or longer, to pay the entire balance.

What's more, a layaway plan won't damage your credit score if you're unable to make the payments. Instead, you can cancel the plan and, depending on the store, often have your deposit and previous payments refunded to you—though a cancellation fee may apply.

There are some caveats to keep in mind, however. First, when you use layaway the merchandise you're purchasing is only made available to you once you've paid in full. You may also be required to spend a minimum amount to use layaway. And certain items may be excluded from layaway purchases.


Layaway plans may only be available for purchases made in stores, not online.

Buy Now, Pay Later vs. Layaway: Which Is Better?

Both buy now, pay later agreements and layaway plans allow shoppers time to pay for purchases, often free of interest charges. In terms of which one is better, the answer can depend on:

  • When you want or need the items you're purchasing
  • How much time you need to pay them off

With a buy now, pay later plan you can get the items you're purchasing right away. You'll typically need to make your first payment toward the plan as a deposit, but there's no waiting period to get the merchandise as there is with a layaway plan.

On the other hand, layaway can give you more time to pay than a BNPL loan. So which is better may ultimately hinge on the timing and your reasons for making a purchase in the first place.

The Bottom Line

Buy now, pay later and layaway plans each have pros and cons for shoppers, but both can be an affordable way to pay. However, if you have good credit and would like to earn some of what you spend back in the form of miles, points, or cash, you might want to consider a rewards credit card instead.