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How Does Buy Now Pay Later Work?

When shopping or making a big purchase, there may be times when, rather than paying for it straightaway or all in one go, spreading out the cost into smaller instalments or delaying the payment altogether. This is where buy now pay later (BNPL) schemes might be helpful. As well as this, you may also find BNPL a more convenient payment method if you want to try things out before paying, such as if you need to order things in a range of sizes or colours.

But, one thing to remember with buy now pay later is that it is a form of credit and, as such, needs to be a considered use. With that in mind, let’s take a look at how buy now pay later works.

What Is Buy Now Pay Later?

Buy now pay later does exactly what it says – it offers a way for shoppers to buy goods now, but pay for them at a later date. BNPL schemes vary, but on average the period for spreading out the cost of goods can range from 30 to 90 days. Millions of people use buy now pay later providers such as Klarna, Laybuy and Clearpay and, when used correctly, it can be a quick and easy way to access credit and help you manage your finances. But, many users of BNPL aren’t aware that if there are late payments or something goes wrong, you risk having marks put against your credit file.

How Much Does Buy Now Pay Later Cost?

If you use buy now pay later to pay for goods within the delay period chosen at checkout, then you won’t pay interest on the purchase. If you use buy now pay later carefully and manage it well, then you can avoid paying interest on purchases for perhaps months, which is good for larger or more expensive purchases. If you clear your balance before your payment date, then you will likely also benefit from interest-free purchases.

Put simply, if you pay on time, then BNPL will only cost the price of the products you’ve purchased. Some providers, however, will add late fees or interest charges to purchases that have been missed, therefore increasing the cost of the products purchased.

Will Buy Now Pay Later Affect My Credit Score?

When you use buy now pay later for a purchase, it is important to remember that you are still borrowing money from a lender. As with most other forms of credit, if you don’t meet the payments, then you could face additional fees or have the purchase affect your credit score. Buy now pay later currently is largely unregulated, meaning that it isn’t mandatory for lenders to report BNPL to credit agencies.

However, the government has recently announced that regulation of BNPL is slowly being introduced, meaning that more accounts will see effects on their credit report if they make late payments, making it harder to get credit in the future.

Many debt advisors will warn against individuals who find BNPL tempting or cause them to spend more than they can afford from using the service, as it helps to create a habit of regularly getting into debt. If you are struggling with debt management or repayments, then there are solutions such as DRO and management plans to help you deal with your payments – always speak to an independent advisor where you can if you are struggling.