Millions of people use buy now, pay later (BNPL) firms such as Klarna, Clearpay and Laybuy when shopping online or in store. Managed well, BNPL can be an effective way of spreading the cost of expensive items. But getting it wrong could cost you dearly.
Spreading your costs for free over a number of weeks might seem like a good one, but make sure you’ve always got a plan in place for repaying what you owe. Even if you can spread your costs via BNPL, you’ll need the money to repay eventually, even if that’s not in full at the point of purchase.
But there are some things you should know:
BNPL is currently unregulated, which means that you will not get the consumer protection you would get with other forms of lending.
For example, Section 75 law means that your credit card provider must protect purchases over £100 for free, meaning you could get your money back if there is a problem. But if you use a credit card to pay using BNPL, the right to chargeback is negated.
The Regulator is currently looking at how BNPL should be regulated, but until then there is little consumer protection.
Miss an instalment and you will likely pay late fees. Not all BNPL do this, so check the Ts & Cs.
Missed payments can have a negative effect on your credit score as BNPL arrangements are included in the report.
It is easy to get into the BNPL habit and accumulate a number of monthly repayments without realising it. Buy five items with BNPL means five repayments to meet. So make sure you are able to make the repayments before you buy.
A recent Which report shows people in more affluent households or with families are more likely to use BNPL services. They also found that some people are using BNPL to access credit at stressful and challenging times in their life – and could be experiencing harmful consequences as a result.
Used properly, BNPL can be a useful way to spread the cost; just so long as you manage it well.
