“Buy now, pay later” plans are a popular alternative to credit cards for consumers looking to finance a purchase. While credit cards require you to make only a minimum payment each month and apply a variable interest rate to the outstanding balance, BNPL services have fixed payments over a set period, so you can avoid getting stuck in a never-ending spiral of compound interest charges.
Many people are jumping on the BNPL bandwagon. According to research from eMarketer, more than 93 million US consumers will use BNPL solutions this year, spending more than $80 billion. And plenty of financial companies are trying to get in on the action, including Varo Bank, which recently opened a waitlist for its own offering.
Varo labels its new product a line of credit, but it’s actually a short-term installment loan that functions like a buy now, pay later plan. Read on to learn how it differs from other BNPL offerings and whether you should sign up for it.
How Varo Line of Credit works
Varo Line of Credit is geared toward existing Varo customers. “The more customers bank with Varo and establish a track record of regular deposits and on-time payments, the more they might be able to borrow,” Varo’s press release states.
The maximum amount you can borrow is $2,000 -- and it may not come cheap. While Varo Line of Credit doesn’t come with an APR, it does charge a one-time fixed fee based on the amount you borrow. When you divide that fee up over the number of installment payments you’ll make, the borrowing cost can exceed what you might pay with a credit card. According to a Varo Bank spokesperson, “A Varo Line of Credit $2,000 loan with a 12-month repayment plan might be comparable to an effective APR of 35.1%.” That’s around 15 percentage points higher than the current average credit card APR.
Your borrowing cost depends on the bank’s calculation of how risky the loan is, which is based on factors including your direct deposit and payment history with other Varo Bank offerings, such as its secured Believe card.
There aren’t any late fees, however, which is a key difference from credit cards, which charge an average late fee of $32.
How does Varo Line of Credit compare to other BNPL plans?
How much you can borrow, how much you’ll pay and your payment timeline vary among BPNL plans. For example, Affirm, Afterpay and Klarna all offer fee-free “pay in 4” plans in addition to other term lengths that carry an APR. Varo doesn’t offer a fee-free option -- its one-time fixed fee applies to any payment term you choose.
Here’s how Varo Line of Credit stacks up to these popular BPNL services:
| Affirm | Afterpay | Klarna | Varo | |
| Payment terms available | Typically 3, 6 or 12 months | 6 to 12 months | 6 to 24 months | 3 to 12 months |
| APR | 0% for 4-payment plans; up to 36% for other terms | 0% for 4-payment plans; up to 35.99% for other terms | 0% for 4-payment plans; up to 33.99% for other terms | One-time fee can equal an effective APR up to 35%+; no fee-free options |
| Late fees | None | Up to $10 | Up to $7 | None |
| Borrowing limit | Up to $5,000+ | Up to $600 for initial limit (can increase over time) | No predetermined limit | Up to $2,000 |
Is Varo Line of Credit worth it?
While some of Varo Bank’s other products stand out from the crowd -- its high-yield savings account is one of the best options available right now -- its line of credit isn’t one of them.
However, it might be worth a look if you’ve struggled to get access to credit in the past and desperately need money for an important expense, such as paying medical bills or car repairs so you can get to work. The key word is “need.” This offering isn’t a good choice for paying for nonessentials. With the potential for an effective APR above 35%, you’ll wind up paying a lot more than the sticker price.
If your credit is in good shape and you need to borrow money to cover unexpected expenses or pay for a large purchase, you’re better off comparing the best 0% APR credit cards. Some of these cards won’t charge you a penny of interest for the first 15 to 18 months after you open the account, which means you’re still buying now and paying later -- but paying the amount on the price tag and no more.