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Buy Now Pay Later purchases

Buy Now Pay Later (BNPL) can help you spread the cost of purchases without paying interest, but it also comes with some risks that are worth weighing up. Find out more.

Eve Powell
Eve Powell
Updated 14 June 2022  | 3 mins read

Key points

  • Buy now pay later (BNPL) lets you shop without having to pay for your items until a later date
  • You pay in several interest-free instalments but if you’re late paying you may be charged a fee
  • Your credit score can be negatively affected if you don’t use BNPL responsibly
  • A credit card can be a useful alternative providing more flexible payments, a longer interest–free period, and the option to earn rewards

What is Buy Now Pay Later?

This is a type of credit agreement that means you can borrow money to pay for something straight away and pay the money back to the lender at a later date.

It allows you to spread the cost of what you buy over weeks or months without needing to pay interest. Check individual BNPL loan terms and conditions carefully as  some will charge interest if you don't pay the balance off in full in the agreed period. 

This doesn’t make the cost of what you’re buying cheaper, but it does give you more time to pay it off which can help with your cash flow.

How does it work?

BNPL is increasingly being offered in high street shops, but it’s more often seen as a payment method option when you’re shopping online.

When you choose this option, it means that the payment will come from the BNPL provider instead of you.

Providers include Klarna, Clearpay, Laybuy and even PayPal. Most BNPL services offer 0% interest and don’t charge fees (unless you’re late on a repayment).

The cost of your purchases is often split into three or four equal instalments that you’ll need to repay.

You’ll typically be offered a range of payment options that may include paying after a set period, paying the first instalment at purchase, or paying weekly, fortnightly or monthly.

The payments are usually taken automatically from your card or account on set dates.

How much does it cost to use Buy Now Pay Later?

Most BNPL schemes will offer you a 0% interest period which typically varies from 30 days to 12 months.

So, if you’re able to pay back what you owe during this timeframe using BNPL shouldn’t cost you a penny.

BNPL providers typically make their money by charging retailers a percentage of every purchase made using their service. Yet, be aware that some may charge you an application fee or late payment fees. It's important to check this before entering an agreement. 

Others may give you the option of spreading the cost over a longer period of time, but interest for this may be charged at a high rate - for example, 39.9% APR.

What are the advantages of Buy Now Pay Later?

Often advertised on TV and online, BNPL is becoming a well-known and increasingly popular option.

The benefits of using BNPL services include:

  • Saving time - You don’t have to wait for the money to be in your account before you’re able to buy what you want
  • Convenience - It offers interest-free short-term credit without having to apply for a credit card and typically takes just minutes to select, sign up and start using
  • No hard credit check - Unlike applying for a credit card, you won’t typically need a hard credit check that will leave a footprint on your credit score
  • Try before you buy - You can order multiple items without paying upfront, then return what you don’t want so you only pay for those that fit or you want to keep
  • Ease of use - With no costly interest rates to watch out for (depending on the option you choose), and the ability to use it for transactions costing as little as £10, BNPL is a type of credit that’s very easy to use

What are the disadvantages?

While BNPL can be a convenient and easy payment method, there are some drawbacks to consider:

  • Late payment penalties - If you don’t make your payments on time you risk being charged late fees and ending up paying more than the cost of what you’ve bought
  • Risk of overspending - As you don’t need to have the money in your account at the time of purchase, BNPL can encourage irresponsible spending
  • Easier to build up debt - It can encourage impulse buying and spending money you don’t have, building up debt you can’t afford to pay off
  • No section 75 protection - Buying through a third party means you lose the consumer protection of a credit card, although BNPL providers usually offer their own protection policies
  • Risk of damaging your credit score - Missed or late payments will negatively impact your credit report and can make it harder for you to get credit or take out a loan in the future. This might impact your loan choices in the future, including negatively impact any mortgage application. 

What’s the difference between Buy Now Pay Later and credit cards?

While they can both offer you interest-free short-term borrowing, there are some differences between using BNPL and a credit card.

Buy Now Pay Later

BNPL can be arranged at the till or online checkout, making credit much quicker to arrange than if you were to take out a credit card.

With BNPL you’re only likely to have a soft credit check run on you - which won’t leave a mark on your file.

To help you spread the cost of your shopping, many providers don’t charge interest or fees for using their services - you’ll just need to pay the weekly, fortnightly or monthly instalment.

Generally, BNPL is better suited for borrowing small amounts over a short period of time, as it doesn’t offer the repayment flexibility or credit limits that credit cards can give you.

Credit cards

When you apply for a credit card, the lender will perform a hard check on your credit report - this will leave a footprint that may impact your future ability to borrow.

Whereas BNPL can only be used at retailers, a credit card can be used more widely so you can also use it to pay for everyday expenses like supermarket shopping and petrol.

If you pay off the balance in full each month you won’t pay any interest, but whatever you don’t pay off will accrue interest at the card’s annual percentage rate (APR).

Some cards charge annual fees but credit cards can also offer the flexibility of paying off purchases at your own pace without fixed instalments. Plus, credit cards can also provide the option to earn rewards like cashback, loyalty points and air miles.

Is using Buy Now Pay Later or a credit card better?

This will largely depend on your financial situation, how much you’re likely to spend and your ability to pay it off.

A BNPL scheme can work well if you’re able to make your payments on time and pay them in full, because you won’t incur any interest or late payment fees.

It can also be a good option if you’ve had trouble being approved for a traditional credit card because you don’t have enough credit history yet or have a poor credit score. However, you must consider whether taking out a BNPL loan with poor credit rating is the right choice for you and your financial situation. 

If you’re likely to be making lots of purchases, a 0% purchase credit card might make more sense as it will give you a longer interest-free period.

Plus, a credit card can give you more flexibility in terms of how much you pay each month and can earn you rewards (depending on the card).

Will Buy Now Pay Later affect my credit score?

Yes, there are a few ways that BNPL can affect your credit score, so it’s worth considering these before you use this payment method.

For example, it can affect your credit score through:

  1. Increasing the amount of personal debt you have

    If you don’t budget correctly, you could end up buying more than you can afford and piling up debt, which can negatively affect your score

  2. Late or missed payments

    BNPL repayment periods are often much shorter than on a credit card and if you miss a payment, you could be charged a fee. Late or missed payments can impact your credit score and the mark will stay on your record for six years

  3. Managing several BNPL accounts

    If you use several BNPL services in a short amount of time, it can affect your credit score, as it might appear like you’re struggling financially and lenders will view you as less likely to be able to pay back a loan

  4. Hard searches on your credit file

    While many BNPL providers only do a soft search, there are some that will do a hard credit search. This leaves a mark on your credit report which can affect your score. Always check before choosing a payment option

Can I use Buy Now Pay Later with bad credit?

It may be harder for you to be accepted for BNPL if you have a bad credit score, but as most providers only do a soft search you may still be able to get approval.

If you’re accepted with bad credit, you’ll need to consider whether using it is a good idea and whether you’ll be able to pay the money back.

A BNPL scheme could make things more difficult for you if you’re already struggling financially.

However, if you can make your payments in full and on time, using BNPL can actually be a way of boosting your credit score - which can help you access more credit options in the future.

What happens if I miss a payment?

If you miss a payment or there are insufficient funds in your account when the provider attempts to take payment, they’re likely to charge you a late payment fee or penalty.

If you continue paying late or missing payments it will be recorded to your credit file. If the missed payments continue, debt collection agencies will get involved and this can incur an additional fee. Also, missed payments may result in you needing to attend court. 

This will put a black mark on your credit file which will stay there for six years.

Not all BNPL providers record information with credit reference agencies though, so it’s worth checking before you use a scheme.

Is it considered a loan?

Yes, BNPL is a type of short-term loan that comes with an instalment plan and can be a cheap way to borrow money.

Most BNPL loans have four or fewer payment instalments with no interest, and typically don’t need to perform a hard check on your credit report.

The agreement you accept when you sign up for BNPL will usually include the terms for late payments, fees and refunds.

As with all borrowing, before agreeing to use BNPL, you should always make sure you understand the details.

What websites let you use Buy Now Pay Later?

Most high street retailers now offer BNPL and there are thousands of others that offer this payment method when you pay online.

It’s also possible to buy through a BNPL provider’s website or app directly - three of the largest providers are Clearpay, Klarna and Laybuy.

Shops and retailers that offer BNPL include M&S, ASOS, JD Sports and Halfords.

Is Buy Now Pay Later regulated by the Financial Conduct Authority?

The way BNPL works means it’s not counted as a regular consumer credit agreement, so to date the sector hasn’t been regulated.

However, this is set to change with the UK government and the Financial Conduct Authority (FCA) looking more closely at this.

The government has already announced plans to introduce regulation which should come into force in 2023.

The aims of the new regulation include making it clear to consumers that BNPL is a credit agreement not just a payment option, putting in rules around how customers in financial difficulty are treated, and more stringent credit checks to avoid people getting into more debt.

When to get debt advice

If you find yourself struggling to pay your debts, the first thing to do is to contact your provider and let them know the situation.

They may be able to pause your payments or work out a new payment schedule with you.

If you’re dealing with money worries in general and struggling with household bills or using a credit product to pay for them, it’s best to seek some help.

There are several registered charities that can offer you free and confidential debt advice from experienced debt advisers, including Citizens Advice and the StepChange Debt Charity.

What are the alternatives to Buy Now Pay Later?

Depending on the situation and the type of spending you need to do, there are other ways of funding your purchases without having to part with your money immediately.

For example, you can apply for a credit card that has an interest-free deal on purchases - this could let you spread your payments over one to two years without incurring any interest.

Using a credit card also gives you the added benefit of section 75 purchase protection on things costing between £100 and £30,000, which can help you claim back your money if things go wrong. There are certain criteria for being eligible for the section 75 purchase protection, such as buying directly from the vendor instead of using an agent or a third party. More information can be found here

If you can, the easiest option to pay for something and avoid debt is to save up - this can help prevent you from making impulse buys and will also give you the time to decide whether it’s something you really need.