Buy Now Pay Later

Contents

Overview

Buy Now, Pay Later (BNPL) schemes have become increasingly popular as a convenient way to spread the cost of purchases over time. 


These schemes allow you to buy items immediately and pay for them later, often interest-free. Below is a simple guide to understanding how BNPL works, its benefits, and things to consider.

What is Buy Now, Pay Later?

Buy Now, Pay Later is a type of short-term financing that splits the cost of a purchase into smaller, more manageable payments, typically made over a few weeks or months. It is commonly offered at checkout in both online and physical stores. There are generally no fees if payments are made on time.

How Does BNPL Work?

When you make a purchase, select a BNPL option at checkout.

You’ll usually undergo a quick approval process, which might include a soft credit check.

Often, you’ll be required to make an initial payment, which could be a small percentage of the total purchase or simply the VAT or shipping costs.

The balance is then split over a set number of payments, which are automatically charged to your debit or credit card on specific dates.

Common BNPL Providers

Klarna


Offers several options, including “Pay Later,” where you can pay the full amount after 30 days, or “Pay in 3,” which divides the cost into three equal payments.


Clearpay


Allows you to pay for your purchases over four equal instalments due every two weeks.

Laybuy


Lets you spread the cost over six weekly payments.

PayPal Credit


Offers a “Pay in 3” service that lets you split your purchase into three interest-free payments.

Pros

Provides an immediate solution if you need to make a purchase but don’t have all the funds available.

Allows you to manage your budget by spreading costs without needing to pay interest.

Easy to use with quick approval at the point of sale, often requiring minimal credit checks.

Cons

While interest-free if paid on time, missed payments can incur fees and interest, negatively affecting your credit score.

It’s easy to overspend because you don’t feel the immediate impact of the expense. Always ensure you can afford the future payments.

Some providers report late or missed payments to credit bureaus. However, regular payments aren’t typically reported, so using BNPL won't necessarily build your credit score.

BNPL schemes may not offer the same level of consumer protection as credit cards, particularly concerning Section 75 of the Consumer Credit Act, which covers credit card purchases between £100 and £30,000 against retailer breach or insolvency.

Considerations

Only use BNPL for necessary purchases to avoid impulse buying.

Make sure future payments fit comfortably within your budget.

Monitor your payments and due dates to avoid missed payments. Consider setting reminders for each due date.