What is buy now pay later?

Buy now, pay later, also known as BNPL, is a type of borrowing. Buy now, pay later lets you make purchases without paying for them straight away. This could be offered by retailers at the point of sale in a store or an online checkout. With buy now, pay later, you are agreeing to make payments in instalments rather than paying the full cost all in one go.

Read more on buy now, pay later, including if buy now, pay later can affect your credit score.

How does buy now pay later usually work?

Buy now, pay later financial products all work in a similar way.

  1. Make a purchase online or over the counter.
  2. You borrow part or all of the purchase amount from your chosen buy now, pay later provider. The buy now, pay later provider instantly pays this amount to the retailer.
  3. You’ll then pay back the money borrowed (plus any interest and charges) in one instalment at a later date, or through regular repayments.

Depending on which provider you’ve borrowed from, and the product offered, you’ll have to make repayments over a period of weeks or months.

The main appeal of buy now, pay later products is there’s usually an initial interest-free period where all you’ll pay is the price of your goods or service (plus a potential service charge or fee). Bear in mind that longer-term borrowing might incur interest or fees.

Before you make a purchase using buy now, pay later, make sure you understand the terms and conditions as well as how much it will cost. And don’t forget that buy now, pay later doesn’t make your purchase any cheaper, it just spreads the full cost over time and could end up being more expensive in total. It’s a good idea to make a note of when repayments are coming out so you can make sure your money is in the right account.

Is buy now pay later a good idea for you?

When used appropriately, buy now, pay later can be very convenient.

For example, if you’re buying a new item of clothing but aren’t sure which size will fit. You could order more than one size, and use buy now, pay later so you're not charged for everything at once. If you return the items you don’t want before the first payment, and provided the returns are accepted by the retailer, you won’t be charged for them.

It can also come in handy for larger purchases, as you can spread the cost rather than having to pay in one go. However, you need to be certain you can afford the repayments otherwise it could have serious consequences.

As buy now, pay later is a form of borrowing, falling behind on the repayments can have an effect on your finances. Any sudden change in your circumstances might impact your ability to repay the money.

You might want to look at alternatives to buy now, pay later. Think carefully about the following:

  • Would I buy this anyway? Impulse buying isn’t necessarily a good way to use BNPL products, so think about how much you really want or need that purchase.
  • Other ways to borrow. You might find a different method of borrowing to be more favourable. That might be a credit card with a longer interest-free introductory period, or an overdraft with lower fees.
  • Saving for a purchase. Rather than borrowing money, think about whether you could save for a few months to buy it outright instead.

Can buy now pay later affect your credit score?

Yes, purchasing items with a buy now, pay later product could potentially impact your credit score. That’s because it’s a type of borrowing, just like taking out a loan or spending on a credit card.

It’s seen as borrowing because you’re repaying the provider of the buy now, pay later product, rather than the retailer where you bought your item.

When you apply for credit, a lender may run a check on your credit file to see whether they can rely on you to repay the money borrowed. The planned regulation of buy now, pay later products means that lenders will be required to report these to Credit Reference Agencies in the future. This means your credit score might be affected if you fall behind on payments.

When lenders run a check on your credit history, they might be able to see if you’ve got any other buy now, pay later products on the go. If you’ve got too many, they may decide it’s too risky to let you have another one.

Missing or making late payments on a buy now, pay later agreement can limit your options in future. You might be turned down next time you apply for any kind of credit. That could be another buy now, pay later purchase or a credit card application, so make sure you don’t take on more than you can afford.

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