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Dec 14, 2021 / Finance

What Is Buy Now Pay Later?

What Is Buy Now Pay Later? image

Buy Now Pay Later (BNPL) has grown significantly in popularity. Most retailers now offer it for online and in-store purchases through companies like Klarna and Clearpay. The idea is to allow people to buy things when they need them, rather than when they can afford them without being charged interest.

How Does Buy Now Pay Later (BNPL) Work?

BNPL terms can vary depending on the provider. In general, the cost of your purchase will be split into 3 or 4 smaller payments. Each payment will have a deadline, and missing a payment deadline can result in late payment fees. While you are not charged interest unless you miss a payment, the purchase may be a little more expensive once you add up all of the repayments.

Retailers who sell products with smaller price points will work with companies like Klarna, which offer 30-day repayment terms. Larger ticket items like appliances may offer longer repayment terms.

How Does Buy Now Pay Later Differ From Credit Cards 

Buy Now Pay Later offers a great alternative to a credit card because it removes the barrier for entry. Most companies will still do identity checks and basic credit checks, but their criteria are not as high as banks or other lenders. That being said, if you have really bad credit, you may still be denied.

Most Buy Now Pay Later schemes only offer a 30 day repayment period, so they are very similar to a credit card term, but the instalments make it easier for people to transfer smaller sums across. Of course, there is a large benefit to the companies that offer a longer repayment period, sometimes up to 12 months, because people can spread the repayments over a number of paychecks.

Similar to a credit card, missing a repayment on a Buy Now Pay Later scheme will result in interest or late fees. These can be high, up to 39%, so it may not be beneficial to people who are worried they may miss repayments.

Will Buy Now Pay Later Affect My Credit Score?

Most of the Buy Now Pay Later companies will perform a soft credit check before each purchase. This is to ensure you will be able to pay it back. A soft credit check does not impact your credit score.

Missed repayments will negatively affect your credit score the same way missing a credit card repayment would. If you pay your Buy Now Pay Later terms on time, they may even give your credit score a small boost.

Should I Use Buy Now Pay Later?

That is largely up to you and your financial situation. Buy Now Pay Later schemes can be beneficial, but only if you are able to make the repayments on time. Late payments can result in hefty interest charges or late fees. Just like with credit cards, if you miss a few repayments, it is easy to get into debt. One of the benefits of a Buy Now Pay Later plan is that they perform a soft credit check before each purchase, so if you have missed a few repayments, it will stop you from purchasing more.

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Published Dec 14, 2021 |

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