Buy now, pay later arrangements, also known as store finance, does just what they say. You can buy something you want and not have to pay for it until a later date – whether that be over 30 days or even up to 12 months. You will find it offered for catalogue buys, gym subscriptions, concert ticket purchases, and much more. The service is often aimed at young people and families.

Common ‘buy now, pay later’ providers include, Klarna, Clearpay and Laybuy.

The cost of buying now, and paying later?

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.

Pros and cons of ‘buy now, pay later’

ProsCons
Convenient and easy to useMay encourage impulse buys, or unneeded splurges
No fees incurred if payments are made on time
Fees and penalties are incurred if payments are missed, causing a negative impact on credit scores
Payments can be made directly from debit cards, bank accounts, and credit cardsDifficulties in requesting refunds from the company supplying the credit, if items do not arrive or arrive damaged.
Limited credit searches, that will not affect your credit score with some providersHigh interest rates

If you are going to use a BNPL arrangement, take the time to read their T&C’s and fine print, as they will vary between stores.

  • The information provided in this article is for guidance and educational purposes only. Police Credit Union Ltd. does not offer regulated financial advice. Please seek independent financial advice.

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