A lot of people who bought home-exercise equipment last year switched to a different kind of consumer credit that allowed them to make the purchase on installment plans rather than with credit cards.

They made the transactions using a service called buy now, pay later, which is highly popular overseas and gaining traction in the U.S.

It is a way to make major purchases and pay it off in a set number of equal payments — such as four payments over six weeks. Some of the companies serving this market charge a fixed fee instead of interest. Some keep interest rates to a minimum. Some don't charge a fee whatsoever. An updated layaway plan.

Buy now, pay later companies have been around and gaining traction for some time, but hit triple-digit growth this holiday season, said Ted Rossman, an industry analyst at creditcards.com.

While there were some new services that debuted in 2020 — such as PayPal's Pay in 4 — most of the players have been around for a while. Even PayPal had a different buy now, pay later solution called PayPal Credit, which continues to exist.

The market leaders include Klarna, founded in 2005; Affirm, which was founded in 2012; and Afterpay, which came on the scene in 2014.

Buy now, pay later can be seen as a hybrid of debit meets credit.

Consumers can potentially get several weeks, months or even years with a 0% interest rate, which makes it the same as a debit card that gets paid over time.

The majority of people who bought items on an installment plan have access to credit cards. According to payment-processing company Cornerstone Advisors, 97% of buy now, pay later users have a credit card; and 7 in 10 of them earn more than $75,000.

But buy now, pay later feels more responsible to many people, Rossman said.

The terms can vary. Affirm will finance the purchase of Peloton equipment over 39 monthly payments. That can make the purchase of a $2,000 fitness bike much more affordable.

A financing company such as Affirm is able to make money by taking a cut of the sale from the merchant. Merchants are willing to pay Affirm to assume the credit risk and facilitate faster product sales.

Although credit cards are the main source of consumer credit purchases, the card industry is taking note of buy now, pay later as a competitive threat.

American Express launched Pay It Plan It in 2017 as its answer to buy now, pay later by letting card members designate certain purchases for installment plans at lower interest rates. More recently, Citi Flex Pay and My Chase Plan entered the scene.