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Wednesday 1st March 2023
Buy Now Pay Later (BNPL*) seems like a good idea. And it can be. But only if you know how it works – and how you can make it work for you!
If you shop online or use a catalogue, you’ll have noticed that many high street brands and big retailers offer a different option at the checkout. It’s Buy Now, Pay Later but you might know it better as Klarna, Clearpay or Laybuy – some of the UK’s biggest names in BNPL credit.
Some high street retailers are now also offering BNPL at the checkout when you download an app like Klarna.
But how does it work? How much does it cost? Is it the right way to pay for you? It can be a lifesaver, but only if you’re careful with it! Check out our guide to getting the best from BNPL and making it work for you…
Buy Now, Pay Later is a popular way to spread the cost of an everyday purchase. It’s become a popular way to finance small-ish purchases for a short period of time – over a couple of months, for example.
You can choose to pay with BNPL at the checkout, paying the first instalment and then spreading the others over the next few months, depending on the terms the BNPL company offers.
BNPL is usually operated by a finance company on behalf of a retailer. Popular BNPL brands include Klarna or ClearPay. PayPal also has a BNPL product.
BNPL can be really useful if you’re making an unplanned or emergency purchase that you just don’t have all the funds for. It’s also a good way to spread the cost of a larger planned purchase.
Where you might get into trouble with BNPL is seeing it as a way to buy things on impulse that you don’t need or you can’t afford. Like that pair of smart trainers that have been calling your name but you already have five pairs stashed under the bed…
It pays to take care with BNPL!
Use it right and BNPL won’t cost you any more than the cash price of the item you’re buying.
There are no fees if you pay off the full amount in the time stated, and there’s no interest. But these terms can vary by provider.
So essentially you pay the cash price but typically over a few months.
None of the big BNPL brands charge you any fees for using BNPL in this way.
BNPL allows you to spread the cost of a purchase and is offered by many high street and online retailers.
So it’s a cheap and quick way to get FREE credit.
It’s also easy to set up and use – perhaps too easy! You just have to select this payment method at the checkout.
Some providers will give you up to 3 months to pay off your BNPL credit.
For many people, the downside of BNPL is the temptation to overspend. BNPL is debt and it needs to be repaid.
Check yourself at the checkout – if you’re only buying this item on impulse and because you can spread the payments, think again about getting into this kind of debt.
Also, because each BNPL company has different terms, make sure you know the Ts&Cs that come with your BNPL purchase.
For example, ClearPay lets you pay in 4 instalments but has a £6 minimum late payment fee.
Alternatively, Klarna allows you to choose to pay in 30 days or 3 months and promises no late repayment fees.
Of course you do! Get a grip on your cash with our free money saving tips, guides and videos sent straight to your inbox. What have you got to lose?
Think about it like this: if you have to borrow to make a purchase, think about that purchase carefully. Because however easy it feels, it is still debt. And debt shouldn’t be taken on lightly.
For example, while you can now use Klarna to pay for a Deliveroo takeaway, it doesn’t mean that you should!
If you do decide that you’re happy and confident to buy now and pay later for a purchase, make sure you factor the upcoming payments into your budget.
According to Experian, when you ask for credit and a lender does a credit check on you, this new credit application will most likely be registered on your credit report. Other lenders can see BNPL searches, but these are excluded from your credit score for 12 to 18 months.
It’s also been reported that Klarna and LayBuy report users’ payment history to credit reference agencies. And Citizens’ Advice have found data that half of 18-34 year olds are taking out loans to make their BNPL repayments.
This year, the government are working to regulate the BNPL industry with tougher affordability checks and FCA approval for BNPL companies.
If you continue to miss BNPL repayments, some providers will refer you to a debt collection agency.
Good question! And the answer depends on a couple of factors…
If your credit card has a low or no rate of interest (an interest free period for example), then using your credit card can be as cost effective – if you repay the amount at the end of the month or within the interest free period.
But there’s another excellent benefit to using your credit card: Section 75.
Section 75 means that all purchases over £100 are protected by your credit card. So, you have an extra layer of protection if you have a problem with the product or service: you get your money back!
Using a ‘third-party payment processor’, in this case, our BNPL providers, means you don’t have a direct link to this credit card cover and so it’s unlikely you can take advantage of the extra consumer protection.
If you find yourself looking for some extra cash every month, it’s really worth finding out if you’re due a tax refund.
2 out of 3 people who are owed a tax refund don’t know about it. And because you can claim for the last 4 years, you could have a tidy sum waiting. Our average 4-year claim is £3,000.
USE OUR FREE Tax Refund Calculator TO FIND OUT IF HMRC OWE YOU MONEY.
We’ll get in contact with them and work out what they could be owed. They get a tax refund and you get a £50 reward.
Every 5 people you refer will also earn you an additional £150 – that's £400 in total! (T&Cs Apply)
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Find out how you can save money - as in make extra cash to put into savings - just by using a credit card.
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