Buy now, pay later apps split a purchase into installments. Normally this means that the customer makes four weekly installment payments that do not include interest charges. The app does not charge interest on these payments because it charges a fee to the merchant to offer this financing service, and this merchant fee is higher than the interchange fee when a consumer uses a credit card.
Buy now, pay later apps also offer longer-term installment payment plans with terms of several months, a year, or more. Some of these plans are subsidized by merchants and also do not include interest. But when merchants do not subsidize these loans, the fintechs often charge interest rates that are similar to credit card rates and other unsecured loan rates.