What You Need To Know About Buy Now, Pay Later Schemes

Buy Now Pay Later (BNPL) schemes have surged in popularity over the last few years. Used responsibly, BNPL can be an affordable and convenient way to borrow money. However, many people using this payment method have found themselves caught in a vicious spending trap, sometimes racking up debts they struggle to pay back.

Here’s our lowdown on everything you need to know about these schemes.

What are BNPL schemes?

When shopping online, you’ve probably seen the option to ‘buy now pay later’. Companies like Klarna, Clearpay and Laybuy allow people to purchase the items they want quickly, without having to part with their money until a later date.

Instead of typing your bank details into the retailer’s website, the BNPL provider will pay on your behalf and your items will be sent your way as usual. You’ll then be in debt to the BNPL company and will need to repay them within a specified time period.

Many retailers have arrangements with particular BNPL providers, meaning you won’t always get a choice which one you use at the checkout. For example, Marks & Spencer (M&S) works exclusively with Clearpay. This means if you tend to use Klarna, you won’t be able to use them when shopping at M&S and will need to use Clearpay or a different payment method instead.

How long do I have to repay the money?

The exact amount of time you’ll have will depend on the provider you’ve used and which payment option you’ve selected.
Some schemes let you pay in full a month after your initial purchase. Others allow you to split your payments over a set number of months. 

How does BNPL differ from credit cards?

Both credit cards and BNPL services allow customers to purchase the items they want and pay for them later, but the two payment options do have some differences.

Application process - You can usually create a BNPL account within minutes without much effort. Applying for a credit card much longer than this and requires you to do more admin and include more personal details.

Easier to get accepted - It tends to be easier to access BNPL than a credit card. This is because BNPL rarely involves a thorough credit check, there’s no income assessment and your existing debts aren’t examined. When you apply for a credit card, however, the checks are much more in-depth.

Fast access to funds - With the help of BNPL you’ll access the money you need instantly. Whereas when you apply for a new credit card, you can wait weeks for it to arrive.   

Do I pay interest on the debt?

These schemes are usually marketed as interest-free and affordable, making them popular among shoppers on a budget and those wishing to avoid costly debts. 

If you manage your BNPL debt carefully and ensure you never miss a payment, this can be an affordable way to borrow.

However, if you pay late, lose track of what you owe, or cannot afford to make your repayments, interest may be added and the debt could become expensive over time.

Does BNPL affect your credit score?

Whether or not BNPL will affect your credit score has caused confusion thanks to conflicting information from providers and retailers. 

If you pay late, your credit score can certainly be impacted. This is because some BNPL providers notify credit reference agencies of missed or late payments. In extreme cases, your debt might be passed onto a debt collection agency and this is also likely to have an impact on your credit rating.

How can I use BNPL responsibly?

Stay organised

By being organised, you can reduce your chances of falling behind on your repayments. Keep track of any BNPL plans you have, whether that’s in a notebook, spreadsheet or app on your phone.

Be sure to log the payment dates so you don’t lose track of what you owe and when. Adding notifications to your calendar can be helpful too. That way, you’ll get a heads up when it’s time to make a payment.

Don’t take on more debt than you can afford

As tempting as it can be to make the most of BNPL services when you’re counting down the days until payday, make sure you don’t take on more debt than you can afford. The money will need to be repaid eventually and the more debt you take on, the harder it’ll be to manage.

Consider the psychological side

Before making a purchase, ask yourself whether you’d buy that particular product if it wasn’t for BNPL. Paying at a later date can trick us into thinking we’re accessing a bargain. It might even feel like you’re not paying with real money. When that bill finally hits and the payment is due, you may find yourself having second thoughts about the clothes you bought impulsively because BNPL made you feel like they were free.
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