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What is Buy Now Pay Later?

If you're shopping online, Buy Now Pay Later (BNPL) can seem like the quickest and easiest way to pay for your purchases. However, lots of people don’t realise they are a form of credit, so you need to think carefully before using BNPL, especially if you’re starting to use these products to cope with the increased cost of living.

What is Buy Now Pay Later?

  • The popular Buy Now Pay Later (BNPL) products you are often offered at the checkout are credit agreements – a form of borrowing.

  • With these products, you usually don’t pay any interest or charges on the amount you’ve borrowed: if you keep to your repayment agreement.

  • They are usually offered by a separate credit provider, not the retailer you’re buying from.

  • Agreements that last less than 12 months aren’t regulated by the Financial Conduct Authority (FCA), which means you don’t get full consumer protection if something goes wrong. 

How does Buy Now Pay Later work?

When you arrive at the checkout to pay for your item, you may be given a choice of repayment options. These are:

Paying in several equal payments

You pay off the cost of the purchase at regular intervals, usually fortnightly or monthly, or over a few weeks or months. These are the products most people think of as Buy Now Pay Later (BNPL) and the ones being used more often for online purchases.  

Paying the full amount in one go after a fixed period

You get a set interest-free period with payment only taken from your account on an agreed date if you decide to keep the items. (For example, Klarna’s Pay in 30 days). Can be useful if you want to try an item before you buy as you can return the goods without paying for them if they’re not right.

Who offers Buy Now Pay Later

Buy Now Pay Later (BNPL) is offered by these providers: 

  • Klarna 

  • Laybuy 

  • ClearPay  

  • Openpay 

  • Zilch 

  • Flava 

  • PayPal 

Flava offers only online food and grocery shopping. You make a first payment when you place your order, then three weekly instalments to pay in full.  

What you need to think about before you use Buy Now Pay Later

Buy Now Pay Later (BNPL) products can be a good way to spread the cost of purchases if you are able to keep up with repayments. However, there are things you need to watch out for:  

Give yourself enough time to think about how you will repay

BNPL is often presented as the easiest way to pay at the checkout, allowing you to buy something with just one or two clicks. 

The transaction may be so seamless you are not even be aware that you have chosen to pay in this way. Or you may be encouraged to choose BNPL over other payment methods. For example, you’ll be offered a further discount if you choose to pay using BNPL. 

This means you might not give yourself enough time to think about whether you need what you’re buying and how you’re paying for it, or you may be tempted by discounts to buy something you don’t really need.

Check the terms and conditions

The small print about what you’re signing up for could be buried somewhere else on the website. It may be hard to work out what repayment plan you’ve taken out or whether it’s best for your needs, especially if you’re offered a choice of BNPL products at the checkout. 

However, as with any form of borrowing, there are risks you should be aware of. So it’s important to make sure you look for and then check the terms and conditions rather than simply tick a box without reading them. 

If you don’t, you won’t be aware of what happens if you miss a payment or can no longer afford to pay.

You may be approved for BNPL even if you can't afford it

Most BNPL products offered at the checkout aren’t regulated, so many providers usually only carry out minimal (soft) credit checks before they approve you. They won’t know whether you can afford to repay what you owe. This may seem great, especially if you’ve been turned down for other credit (some BNPL providers use this a selling point).

However, knowing that your BNPL agreement won’t show up on your credit score may encourage you to spend more money than you usually would.

Bear in mind that affordability checks (like the ones carried out when you apply for a credit card) are there to protect you and can stop you overstretching yourself.

If you take out too many BNPL agreements or are juggling other loans or credit, this makes it hard for you to have a clear view of all your commitments and overall, may increase the risk of falling into problem debt. 

Your consumer protection could be limited 

As these BNPL products aren’t currently regulated by the FCA, this means that you won’t be able to make a complaint to the Financial Ombudsman Service if something goes wrong or you feel you haven’t been treated fairly if you fall into financial difficulty. 

Some providers do offer in-house dispute resolution services, but they won’t be impartial and they vary from one to another, so you need to check how each provider deals with these points in their terms and conditions. This can be confusing if you’re dealing with more than one provider. 

You are not protected by Section 75

If you pay for something by credit card and there is a problem with it, for example if it’s damaged or broken, you can make a complaint to the retailer and ask for a refund under the Section 75 Regulations. 

However, even if you make a BNPL payment using a credit card, you’re not covered under Section 75, as the payment is made by the BNPL provider to the retailer.  

Before you buy anything, check what buyer protection your BNPL provider is providing. For example, if you have a dispute with a trader, some providers will pause payments until the issue is resolved and refund any payments you've already made if the dispute is settled in your favour. However be aware these are policies rather than legal rights.

Using BNPL can affect your credit score

Applying for a BNPL agreement usually only involves a soft credit check, so this shouldn’t affect your credit rating if you keep up with payments.  

However, some providers including ClearPay and LayBuy will do a hard credit check before you set up an account with them.  

Klarna started reporting all purchases to credit references agencies using its Pay in 30 days and Pay in 3 BNPL schemes made on after 01 June 2022. This includes all purchases that are paid on time, as well as late or missed payments. It has said it won't report any attempts to make a Klarna purchase that are rejected.

If you miss any payments, your BNPL provider (including LayBuy and OpenPay) can report this to the credit reference agencies and this would affect your credit score. 

Even if your BNPL purchases don’t appear on your credit score, if you are applying for other credit you may be asked about any BNPL products you’ve got when your provider does their affordability assessment and if you have made a lot of use of BNPL products this might affect your access to other forms of credit.  

What happens if I miss a payment or can't keep up with repayments

If you don’t keep up with your repayments, you can be charged a penalty fee (for example, LayBuy, ClearPay, PayPal Pay in 3) or the payment can be rolled into the next one (Klarna). 

If you are still unable to make payments, some BNPL providers will pass your debt on to a debt collection agency to collect payments.  

This means that if you are struggling to pay, it’s important to contact your BNPL provider to explain your situation. Most will try to work with you to find a solution. Look in the terms and conditions section of their website to find out what support is available.  

Keep track of your BNPL purchases

Keeping a record of how much you’ve spent and when your payments are due is vital to avoid additional charges on Buy Now Pay Later (BNPL) agreements, particularly if you have more than one agreement on the go. Some BNPL providers offer you access to your account via their website or an app to help you keep track. 

Providers should contact you before payment is due, but because they aren’t regulated by the FCA they don’t have to. 

Make sure you include this payment in your budget to keep track and ensure you pay on time. 

Using BNPL agreements well

If you decide Buy Now Pay Later (BNPL) is the right thing for you, this way of paying won’t cost you any more than if you paid for it in up-front in full and can be a good way to spread the cost of more expensive or emergency purchases – if you keep up with repayments.  

However, you need to:

  • Be confident you can repay on the due date. Think about what would happen if you got an unexpected expense between now and then. Would it make you miss a payment?
  • Avoid using BNPL if you're already in problem debt and get help as soon as you can from a free, impartial debt adviser.
  • Read the terms and conditions to know exactly what kind of BNPL agreement you’ve taken out. Some BNPL providers offer more than one option, and terms of repayment will differ. 

  • Choose the repayment method that works best for you and make a note of when payments are due. Not knowing this could mean you accidentally miss a payment or have a payment taken from your account when you weren’t expecting it, which could affect your ability to pay other commitments.
  • Look out for notifications from your provider, telling you when your next payment is due.  
  • Find out what your provider’s policy is if you were to miss a payment. Some will charge a late fee after as little as 24 hours.
  • Stick to your budget. Using BNPL might encourage you to spend more than you intended to.  

  • Be wary of incentives used to get you to use BNPL over other payment methods, for example offering a 10% discount or free delivery if you choose BNPL. 

  • Use your debit card to make repayments. Making repayments with a credit card means you will only push the debt further down the line. This is a problem if you can’t afford it and a sign you could be heading towards problem debt. 

  • Make sure your payment card is in date until the last payment is made. If it expires while you’re paying off a BNPL purchase, you will miss a payment. It’s up to you to tell your provider about your new card details. 

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