Buy now, pay later (BNPL) is emerging as a popular payment alternative to credit cards, layaway, and rent-to-own plans. An estimated 60% of Americans have used a buy now, pay later service at least once to make purchases online or in a store. Meanwhile, rent-to-own has grown into an $8.5 billion industry, focused primarily on big-ticket purchases like furniture, appliances, and electronics. When comparing buy now, pay later and rent-to-own, here are some key differences to keep in mind.

Buy now, pay later plans allow consumers to make purchases online or in stores and pay them off in a series of installments.
These point-of-sale installment loans may require no credit check to qualify and charge no interest on purchases.
Rent-to-own plans also allow consumers to pay for purchases over time with no credit checks and fast approval.
However, rent-to-own can mean paying substantially more for purchases compared with buy now, pay later.

Buy now, pay later refers to a type of short-term financing that allows consumers to pay off purchases in installments and usually without interest. With one of these point-of-sale loans, shoppers make a deposit against their purchases, then pay off the remaining balance in three or more installments spread out over time.

There are a number of platforms that offer buy now, pay later loans, including:

Each of these platforms partners with a variety of major retailers to offer buy now, pay later as a payment option at checkout. Typically, there’s no credit check required to qualify for a point-of-sale installment loan. That can make this short-term financing attractive for people with limited credit history.

Buy now, pay later services may charge no interest or fees on purchases, either. The most common buy now, pay later purchases include clothing, electronics, furniture, appliances, housewares, and cosmetics.

Unlike layaway plans, which require you to pay in full before receiving the items you’re purchasing, buy now, pay later lets you take possession of your purchases after making your first payment.

Rent-to-own is an arrangement in which consumers make payments for items with the goal of eventually owning them. This is similar to the way a rent-to-own or lease-to-own agreement to buy a home works.

There are a number of stores that specialize in rent-to-own financing, including Rent-A-Center and Aaron’s Rent to Own. They allow people to purchase items then pay for them over time, often with:

No credit check
Fast approval
Low minimum deposits
Weekly, biweekly, or monthly payments
Payment plans to fit individual budgets

With rent-to-own agreements, consumers aren’t borrowing money. Instead, they’re agreeing to make rent payments on one or more items for a set period of time. If they make all the scheduled payments in full, the item becomes theirs. But they can also choose to discontinue making payments and return the item to the store.

Rent-to-own plans may require a deposit to get started, though this can be as little as $1, depending on the store or vendor. Many stores also offer free delivery and set up for appliances, furniture, and other large items.

Rent-to-own stores may rent out new items or ones that have been rented previously and been returned by customers.

Buy now, pay later financing can offer some distinct benefits to consumers who use these services. Those include:

Being able to receive the items now and pay them off over time
Flexible payment options
No credit check to qualify
Flexible spending limits
No interest charges on purchases (generally)

All of those things can make BNPL attractive, particularly for consumers who may have a limited credit history. But there are some downsides to consider, starting with the potential to overspend.

Among consumers who use point-of-sale installment loans, the average balance owed is $883. Fifty-seven percent of shoppers who use buy now, pay later say they’ve regretted making a purchase because the item was too expensive. So while these services can offer convenience, there’s a price to pay for shoppers end up overspending.

Buy now, pay later can also be problematic if the buyer can’t keep up with the payments. The platforms that offer these loans can charge late fees for missed payments. In a worst-case scenario, they may report borrowers to the credit bureaus, which can cause credit score damage.

While many buy now, pay later services charge no interest, that’s not always the case. So be sure to find out upfront whether you’ll be responsible for interest charges or fees.

Rent-to-own agreements share some similarities with buy now, pay later plans. For instance, you can typically get the items you purchase the same day you sign up for a rent-to-own plan. You don’t have to wait until the items are completely paid for, as you would with a layaway plan.

Qualifying for rent-to-own financing may be easy if there’s no credit check involved or a rent-to-own store accepts shoppers with poor credit. It’s possible to be approved the same day and walk out with the items in hand.

In terms of how rent-to-own payments work, these can be flexible and made to fit your budget. For instance, stores might offer weekly, biweekly, or monthly payment plans. You might have 12, 18, or 24 months to pay off your purchases.

The biggest disadvantage of rent-to-own is how much it can cost. Rent-to-own is a lease transaction, not a credit transaction. In other words, it’s not a loan so there’s no interest to pay. But rent-to-own stores can tack on a cost of leasing or renting fee to the cost of your items.

This can make any item purchased through rent-to-own more expensive than it might be if you used buy now, pay later or another form of payment. The Aaron’s website, for example, specifies that “your total cost of ownership will be more than the retail price.”

The total cost you’ll pay for an item purchased through rent-to-own should be disclosed in your lease or rental agreement. However, these documents can sometimes be confusing and difficult to read so it may require some digging to understand what the items will actually cost.

Some rent-to-own outlets offer a “same as cash” option, which allows you to pay only the store’s cash price for an item, plus applicable taxes. However that store’s cash price may be higher than you could find elsewhere.

Compared with rent-to-own agreements, buy now, pay later may be more transparent in terms of how much you can spend and how much you’ll pay for whatever you’re purchasing. But rent-to-own may give you more time to pay. When choosing between either payment option, consider how affordable the payments are and what you’ll pay in total after any fees or other charges are factored in. Read up on the best buy now, pay later apps to decide which ones might be right for you. Also consider the benefits of using a rewards credit card to pay instead if you’re interested in earning miles, points, or cash back on purchases.


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