Having less-than-stellar credit can complicate the car-buying process. Getting approved for a traditional auto loan with a low credit score can seem nearly impossible. However, a variety of financing options exist for bad credit borrowers, and many are using alternative tools that offer flexible, short-term plans.
With consumers increasingly on the hunt for financing options, Buy Now Pay Later (BNPL) services are rapidly growing in retail and online checkouts. Buy now, pay later options allow shoppers to immediately purchase a product and then pay in installments, which are usually interest-free and spread out over a short time period. These payment plans are becoming more attractive to shoppers seeking alternatives to credit cards or personal loans.
BNPL services are commonly used for small, discretionary items like clothes and electronics. However, tapping into these services for larger-ticket purchases – including vacations and healthcare – is gaining traction. While BNPL gives consumers short-term finance solutions, the convenience could come with some hidden risks that may impact your financial health and stability, and, ultimately, your ability to get an auto loan.
What Is Buy Now Pay Later?
Buy now, pay later lenders such as Klarna, Afterpay, and Affirm offer shoppers a variety of payment programs.
Pay in 4 is the most common for purchases between $50-$1,000-plus and splits it into four equal payments with a down payment due at purchase, and the following three each due two weeks apart. These payments are usually interest-free when paid on time.
For example, if you purchase an item for $850, the first payment of $212.50 is expected immediately at checkout, and then you would pay the remaining $637.50 biweekly within six to eight weeks.
Lenders also offer monthly or pay in 30-day plans, which are often used on purchases between $50-$5,000-plus. When paid on time, most 30-day plans are also interest-free.
How Does Buy Now Pay Later Impact Your Credit?
Major BNPL lenders have made the application process simple for shoppers by partnering directly with retailers and brands and offering payment options at checkout.
When you apply for a loan, most BNPL lenders will perform a soft credit check to verify your identity and determine your eligibility. Soft credit checks do not impact your credit score.
Buy now, pay now lenders will likely do a hard credit pull for borrowers who need bigger loans or more time to pay. Pay Over Time plans spread the cost over six to 24 months, and, in some cases, up to 60 months. In these plans, you may be subject to a hard credit pull, which will impact your credit score. Standard APR is applicable for these loans and can range between 0% and 36%.
Missing payments on a BNPL purchase, especially for Pay Over Time or 30-day plans, can result in late fees (between $2.50-$15) and could be sent to debt collection, which can hurt your credit report rather than build on it.
Some BNPL lenders partner directly with credit bureaus and will report repayment activity. Affirm, which partnered with Experian and TransUnion in 2025, reports your first monthly installment payment and does not report again unless your payment is 30-plus days late.
Credit scoring company FICO also began incorporating BNPL activity in its data in 2025. Lenders typically use FICO scores to determine whether or not to approve car loans, and FICO's new BNPL credit score models incorporate BNPL info with the company's mainstream credit reports. The move follows more consumers using BNPL loans as their first credit experience, FICO officials said.
"Buy Now, Pay Later loans are playing an increasingly important role in consumers’ financial lives," said Julie May, vice president and general manager of business-to-business scores at FICO. "We’re enabling lenders to more accurately evaluate credit readiness, especially for consumers whose first credit experience is through BNPL products."
While not all BNPL lenders in the U.S. report to credit bureaus, many do, so it's crucial to read the terms and conditions before agreeing to a BNPL loan.
BNPL Risks
For borrowers without access to traditional credit, the convenience of BNPL options can be very appealing. However, there are risks to consider before using a BNPL service for a purchase.
Making interest-free purchases that can be paid in smaller amounts can make BNPL seem more affordable. This could encourage you to buy more than you can reasonably manage. It could also lead to taking out multiple BNPL loans simultaneously, which can make it tricky to keep track of due dates and put strain on your monthly budget. Managing multiple accounts without knowing exactly how much you owe can make it easy to miss payments, increasing your debt.
Since not all BNPL activity is reported to credit agencies, it can lead to "phantom debt," which makes it harder for traditional lenders to evaluate your financial responsibilities and could impact your ability to get a car loan in the future.
It can also be challenging to return items purchased on BNPL plans. Borrowers may still be on the hook for payments until a return is processed and added to your account, even after you've sent back the item. Canceling or rescheduling a payment can also come with hurdles or fees.
Buy Now Pay Later vs. Buy Here Pay Here
Although some BNPL providers are partnering with car dealerships or offering specialized car financing options that function similarly to an installment loan, these services typically don't apply to large-scale loans like an auto loan.
If you've got bad credit or limited credit history, a BNPL lender is likely not your best option. Here's where a buy here pay here (BHPH) car lot can help. A BHPH dealer allows you to finance a car with money through the dealership as opposed to a bank, credit union, or finance company.
Like BNPL services, buy here pay here dealerships don't typically require a credit check. BHPH dealerships will need proof that you can afford the loan, so bringing pay stubs or bank statements with you can help you get a quicker approval. While most BNPL services are interest-free, buy here pay here loans are not, and interest rates at BHPH lots tend to skew higher than traditional auto loans.
For buyers with low credit, BHPH dealerships can be appealing, but they do have drawbacks. These dealerships almost always require a down payment and more frequent payments, which makes them similar to how buy now pay later plans work. Additionally, many BHPH dealerships don't report your on-time payments to credit agencies. So, while this type of loan will allow you to drive the vehicle off the lot, it often doesn't help rebuild credit.
Alternatives to Buy Now Pay Later
While BHPH lots can be ideal for shoppers who immediately need a car, borrowers who want to boost their credit should consider these alternatives.
- Try a credit union: If you have fair or poor credit, a credit union could be a viable option over a traditional loan. At a traditional dealership, loans can be financed through third-party lenders who may not have favorable interest rates. However, credit unions usually have more flexible approval requirements and lower interest rates.
- Use a cosigner: If you're unable to get approved through a credit union, asking a close family member or friend with good credit to cosign can improve your ability to get approved. Missing a payment can put your cosigner on the hook, especially if the debt goes into collections, damaging both your credit and theirs.
- Seek special finance lenders: Can't find a credit union or cosigner? A subprime lender could be your best bet. These third-party lenders partner with special finance dealerships and can help borrowers with credit scores around 670 or lower get a new car, though interest rates will likely be higher than a traditional car loan.
