BNPL is often used to purchase things that might not fit within your budget. However, its important to remember that with any financial commitment, there can be risks if the buyer is not careful.
A danger of BNPL, is the temptation to overspend. For example – you have your eye on a designer bag at £1,000. You are aware that you can buy it on a BNPL offer at a smaller amount of £42 a month for 24 months, which feels more affordable. However, you are now playing catch to pay it off over 2 years, and while monthly payments might not seem much, that’s money that could have been saved, or spent elsewhere.
Missing monthly repayments can have a negative impact on your finances. Research carried out by The Ascent, on ‘Buy Now, Pay Later’ services, found late fees on missed payments varied between providers, some charging as much as £39 a time, and others charging up to 25% of your initial purchase order. A missed payment could mean that a provider will charge you interest on your balance, and can also be reported on your credit report, negatively effecting your credit score.
An attractive benefit of BNPL, is that you can pay off your purchase without paying interest, for a certain period of time. However, if the full payment is not made by the end of that interest free period, then the provider charges interest. Remember to make sure you make enough monthly repayment to have the balance cleared before the interest free period expires.