Explaining Buy Now Pay Later purchases

Shopping online, you’ve probably seen the option to ‘Buy Now Pay Later’ (BNPL). The adverts are very enticing. It may be tempting to delay payments on your purchases but it can be a slippery slope to spending more than you can afford. Here we explain BNPL.

What’s Buy Now Pay Later?

BNPL agreements allow you to buy goods on credit and pay for them later, through regular interest-free instalments or after an interest-free period.

It’s becoming increasingly common at some high-street shops, but it’s more commonly used by online retailers and catalogues, for products often aimed at young people and families.

BNPL providers include Klarna, Clearpay and Laybuy, who offer a range of payment options. Some agreements let you pay after a set period of time (hence the name); Others let you pay for your purchases in instalments.

BNPL can provide the opportunity to take up sale offers when you don’t have cash available to pay there and then.

Remember, if your payments aren’t on time you might have to pay penalty fees or charges. Any rights or protections you have will depend on your chosen payment option.

It’s really important to keep track of:

• how many different BNPL agreements you have.
• how much you’ve paid
• how much you still owe
• your repayment dates

Why’s BNPL so popular?

This type of finance has existed for years. Recently, some companies have made it more popular with younger consumers., in part due to slick ad campaigns using A-list popular TV show celebrities that sometimes target people on social media who might be less able to afford the items.

Some online clothing retailers do this not only the BNPL providers.

Often with low minimum spends of just £10, BNPL is very easy to use.

Take care, it’s easy to miss the negative impact it can have on you in terms of piling up the amount that you owe and causing damage to your credit rating if you don’t make your repayments timely.

What will I be charged?

Did you know?

Some BNPL’s charge interest, others don't. Interest-free products are not currently regulated by the FCA. This may 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.

Depending on the payment method you’ve chosen, exact charges will vary from one provider to another.

Pay in instalments

This is where the total amount of your purchase is split into typically three or four payments. You usually make one payment upfront and give the provider permission to take remaining instalments later.

If you miss any of these payments, you’ll be stung with hefty late payment fees that’ll build up if you keep missing payments.

Pay later

Here you delay payment for the full value 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.

You’ll usually get a reminder when it comes to make a payment.

Don’t miss payments. If you do, this debt can be passed onto debt collection agencies.

Pay on credit

This is the most traditional form of BNPL.

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

Lenders should tell you before you borrow how much interest as an APR you’ll be charged.

Missing payments may mean fees will be charged and will negatively impact your credit report.

Will BNPL affect my credit score?

Most BNPL agreements that are interest-free shouldn’t affect your credit rating. This is because they usually only require a soft credit check.

Any missed payments will incur a penalty fee or charge. See our earlier blogs on credit scores.

How can I keep track of my BNPL purchases?

Budget Planner

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.

To help manage your money, use a budget planner.