What are Buy Now Pay Later purchases?

If you’ve ever shopped online, you’ve probably seen the option to ‘Buy Now Pay Later’ (BNPL). While it might be tempting to delay payment for something you want to buy – and the adverts can often be very enticing – it can be a slippery slope to spending more than you can afford.

What is Buy Now Pay Later?

 

Buy Now Pay Later (BNPL) agreements are a way for you to buy goods on credit and pay for them later. This might be through regular interest-free instalments or after an interest-free period.

This is becoming a common payment method at some high-street shops, but it’s more commonly used by catalogues and online retailers. Their products are often aimed at young people and families.

Buy Now Pay Later providers include Klarna, Clearpay and Laybuy. These companies offer a range of payment options. Some agreements will let you pay after a set period of time (hence the name), while others will let you pay for your purchases in instalments (sometimes called ‘slices’).

BNPL can be useful, for example, by providing the chance to take up sale offers when you don’t have cash available to pay there and then.

But remember, if you don’t make payments on time you might have to pay penalty fees or charges. Any rights or protections you have will depend on the your chosen payment option.

That’s why it’s really important to keep track of:

  • how much you’ve paid
  • how much you still owe
  • your repayment dates
  • how many different Buy Now Pay later agreements you have.

 

This type of finance has existed for years. But recently, some companies have made it more popular with younger consumers. This is thanks in part to slick ad campaigns with A-list celebrities from popular TV shows.

The adverts sometimes target people on social media who might be less able to afford the items.

It’s not just the Buy Now Pay Later providers that do this – some online retailers, especially clothing retailers, do too.

Buy Now Pay Later is very easy to use, with low minimum spends of just £10.

But it’s easy to miss the massive negative impact it could have on you in terms of piling up the amount that you owe and causing damage to your credit rating if you don’t keep your repayments on track. 

What will I be charged?

Exact charges will vary from one provider to another, and depend on the payment method you’ve chosen.

Not all services and payment options offered by these companies are regulated by the Financial Conduct Authority (FCA). This is because they don’t charge interest.

This might mean you can’t go to the Financial Ombudsman Service (FOS) if you’ve got a complaint about the service offered by a BNPL provider.

Pay in instalments

 

This is where the total amount of your purchase is split into a few segments – typically three or four. You usually have to make one payment upfront and give the provider permission to take payment for the rest of the instalments later.

If you miss any of these later payments, you’ll be stung with pricey late payment fees. These fees will build up if you continue to miss payments.

Pay later

This is where you delay payment for the total amount of your purchase for a set number of days – typically 14 or 30.

You won’t have to give payment details upfront, but you will have to pass a soft credit check before your purchase is accepted.

When it comes to make a payment, you’ll usually get a reminder.

But don’t miss a payment –  because if you do, this debt can be passed onto debt collection agencies.  

For guidance on what to do if your debt is passed onto a debt collection agency, see the StepChange website

Pay on finance

 

This is the most traditional form of Buy Now Pay Later.

You’ll have to agree to a formal payment plan upfront, you might be charged interest and you’ll be credit checked when you apply.

Lenders should tell you before you borrow how much APR (annual percentage interest rate) you’ll be charged.

If you miss payments, you will be charged fees – which could negatively impact your credit report.

Will Buy Now Pay Later affect my credit score?

Applying for most Buy Now Pay Later (BNPL) agreements using interest-free instalments shouldn’t affect your credit rating. This is because they usually only involve a soft credit check.  

Any missed payments will be subject to a penalty fee or charge.

How can I keep track of my Buy Now Pay Later purchases?

If you’ve made Buy Now Pay Later purchases, it’s important you keep a record of how much you’ve paid and when your payments are due.

You should also draw up a budget to make sure you have enough money to make each payment, otherwise you could get caught out by expensive late payment fees.

What happens if I miss a payment?

If you’ve missed a payment, contact your lender to explain your situation. It’s important to avoid taking out more credit unless you know you can afford to pay it back.

These websites can help you talk to your lender:

If you’re struggling with something bought on finance, see the Citizens Advice website

When to get debt advice

Have you already missed payments and not able to come to an agreement with your lender? Then it’s best to get advice as soon you can, especially if you’ve got other debts as well.

Can I use Buy Now Pay Later if I’m on a debt management plan?

Usually, if you’re using a debt repayment tool such as a debt management plan or an individual voluntary arrangement it’ll be against the rules to take out extra credit (such as a Buy Now Pay Later agreement).

However, there might be exceptions.

How to avoid high-cost credit

 

If you can’t take out a Buy Now Pay Later agreement and you would find it difficult to access mainstream credit options (such as an overdraft, personal loan or credit card), you might be tempted by high-cost credit (like payday loans or doorstep lenders).

These forms of credit can end up being very expensive and you need to think very carefully before you decide whether to borrow in this way. 

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MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

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Looking for us? Now, we’re MoneyHelper

MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

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