Buy Now, Pay Later: How It Works, Pros and Cons
What is Buy Now, Pay Later?
Buy Now, Pay Later (BNPL) is a way to pay for things without paying the full price upfront. Instead, you split the cost into smaller payments over a few weeks or months. It's become very popular in the UK, with big names like Klarna, Clearpay, and Laybuy offering these services.
How Does Buy Now, Pay Later Work?
When you shop online or in some shops, you might see an option at checkout that says "Pay in 3" or "Pay Later" or something similar. Here's how it typically works:
Choose BNPL at checkout: When paying for your items, select the BNPL option
Quick check: The BNPL provider does a quick check to see if you qualify
Pay a portion now: Often you pay the first instalment right away (usually 25% of the total)
Pay the rest later: The remaining amount is split into equal payments, usually every two weeks or monthly
For example, if you buy a £100 pair of trainers using "Pay in 4", you might pay £25 today and then £25 every two weeks until you've paid the full £100.
Why Has Buy Now, Pay Later Become So Popular?
BNPL has grown quickly in the UK because:
It's quick and easy to use
Many services don't charge interest (if you pay on time)
You don't need a credit card
It helps spread the cost of bigger purchases
Many online shops now offer it as a payment option
The Pros of Using Buy Now, Pay Later
1. Spread the Cost
BNPL lets you buy something you need now but pay for it over time. This can be helpful for managing your budget or dealing with unexpected expenses.
2. Often Interest-Free
Many BNPL services don't charge any interest if you make all your payments on time. This makes it cheaper than putting purchases on a credit card where you might pay high interest rates.
3. Quick and Easy
Setting up BNPL is usually very quick - often just a few clicks at checkout. You don't need to fill in lengthy application forms like you would for a credit card or loan.
4. No Hard Credit Check (Usually)
Most BNPL providers do a "soft" credit check that doesn't leave a mark on your credit file. This means applying won't affect your credit score in the way that applying for a credit card might.
5. Helpful for Trying Items
Some BNPL services make it easier to try before you fully commit. For example, you might buy clothes, try them on at home, return what you don't want, and only pay for what you keep.
The Cons of Using Buy Now, Pay Later
1. Easy to Overspend
Because BNPL makes buying things seem more affordable, it's easy to spend more than you planned or can afford. The small payments can add up quickly if you use BNPL for lots of purchases.
2. Late Fees Can Be Expensive
If you miss a payment, most BNPL providers charge late fees. These can add up and make your purchase much more expensive than the original price.
3. Can Affect Your Credit Score
While applying might not affect your score, missing payments can. Some BNPL providers report missed payments to credit reference agencies, which could hurt your chances of getting credit in the future.
4. Less Protection Than Credit Cards
Credit cards offer protection under Section 75 of the Consumer Credit Act for purchases between £100 and £30,000. Most BNPL arrangements don't offer this same level of protection.
5. Risk of Debt Problems
It's easy to have several BNPL agreements running at once. This can make it hard to keep track of what you owe and when payments are due, potentially leading to debt problems.
Is Buy Now, Pay Later Right for You?
BNPL might be right for you if:
You need something now but payday is a few weeks away
You're certain you can afford the repayments
You're good at keeping track of payment dates
You're not already struggling with debt
BNPL might NOT be right for you if:
You're already finding it hard to manage your money
You tend to spend impulsively
You already have several BNPL agreements
You're unsure if you can make the future payments
New Rules for Buy Now, Pay Later
The UK government has announced plans to regulate BNPL services. This means BNPL providers will need to:
Check that customers can afford the repayments
Handle complaints fairly
Allow customers to take complaints to the Financial Ombudsman Service
These new rules aim to make BNPL safer for consumers.
Tips for Using Buy Now, Pay Later Responsibly
If you decide to use BNPL, here's how to do it safely:
Make a budget: Work out what you can afford to repay each month
Keep track: Make a note of all your BNPL agreements and payment dates
Set reminders: Put payment dates in your calendar or set up alerts
Don't overuse: Try to have only one or two BNPL agreements at a time
Read the terms: Understand the late fees and what happens if you miss a payment
Consider alternatives: Sometimes saving up or using a 0% credit card might be better
Conclusion
Buy Now, Pay Later can be a handy way to spread the cost of purchases, but it comes with risks. By understanding how it works and using it carefully, you can enjoy the benefits while avoiding the pitfalls.
Remember, the best purchase is one you can truly afford, whether you pay now or later.
Frequently Asked Questions
Will using BNPL affect my credit score? Applying usually won't, but missing payments might affect your score with some providers.
Is there a limit to how much I can spend using BNPL? Yes, BNPL providers set limits based on your history with them and other factors.
Can I use BNPL everywhere? No, only at retailers that have partnered with BNPL providers.
What happens if I can't make a payment? Contact your BNPL provider right away. They might be able to help, but you may still face late fees.
Is BNPL the same as a credit card? No, though both are forms of credit, they work differently and have different protections and costs.
Disclaimer: This article provides general information only and is not financial advice. If you're struggling with debt, contact a free debt advice service like StepChange or Citizens Advice.