By Martyn James
Buy now, pay later deals are a way to pay for things in chunks, often without interest, allowing you to spend money without using traditional loans. Here’s a guide to how buy now, pay later (BNPL) credit works and your rights if things go wrong.
What is buy now, pay later credit?
BNPL works by giving you a short-term loan, with or without interest, so you can buy goods or services at the till when you don’t have the full balance to hand, or money is tight. Retailers love BNPL credit deals because these loans allow people to buy more than they can afford with just a few clicks. The credit deals generally fall into the following three categories:
1. Try before you buy
This is where you have a short period of time to try things on, check goods out and see if they work for you before committing to buy. However, if you don’t return the goods on time, you could find you’ve bought them!
2. Limited instalments
The most well-known form of BNPL deal works by letting you pay in a limited number of instalments interest-free. This means you can buy things up front that you may not have the money for in full at point of purchase. However, you have committed to buy.
3. Credit agreements
These deals are closer to the older credit deals in that you pay in instalments over a longer period and pay interest. This isn’t as high as some retailers charged in the past – it’s usually less than credit card interest – but is still higher than a standard bank loan.
So, what’s the problem?
No interest doesn’t seem that bad, does it? Well, what happens if you can’t pay?
While BNPL firms may not charge debt interest, businesses can be quick to pass on debts to debt collectors who have a whole range of penalties and pressure tactics they can apply – and they can register financial debts with credit reference agencies.
Some BNPL businesses are now saying that they will include details of existing arrangements on your credit file to show to lenders that you are paying off your credit deal and to improve your score. But this might be counterproductive if you have too many deals (or even one), as it suggests you don’t have much cash to play with.
Can I afford it?
The desire to buy can sometimes overrule logic. So if you’re thinking about using BNPL loans, firstly take a moment to consider a few things.
Make a basic budget and have a look at how much money you have left over each month when you’ve paid all the essentials. If that money isn’t enough to cover an emergency you should avoid BNPL credit. That’s because you’re simply moving the problem further down the line – where more could go wrong.
If you’ve already taken out credit, don’t panic! There are free organisations like StepChange to help you if you are struggling to pay the bills.
Martyn James is a leading consumer rights campaigner TV and radio presenter and journalist