Getting your head around Buy Now, Pay Later

By Ruth Bushi

Buy Now, Pay Later is a way to shop online and in-person without handing over any cash upfront. In theory, it’s easy, breezy and really handy – but it comes with a catch.

What is Buy Now, Pay Later?

You’ve probably seen Buy Now, Pay Later while shopping online (some high street shops offer it, too). Choosing this option lets you delay paying for your purchases or split the cost into smaller instalments.

Some stores offer their own Buy Now, Pay Later programmes. Others partner with well-known brands to run it for them – for example, Klarna, Clearpay, Splitit and Laybuy.

All of these let you order or take home whatever you want, from clothes and accessories to games and gadgets. A few weeks later, the payment company collects the cash you owe from your bank account.

If you choose to pay in instalments, the company collects a smaller, set amount on the date you’ve agreed. This could be once a month, once a week or every fortnight, until you’ve paid it all back.

When would you use Buy Now, Pay Later?

The flexibility of paying later is especially tempting when:

• You haven’t been paid yet or are short of money, but can’t put off a purchase
• You like ordering several items to try at home before deciding which to keep
• You can’t get a credit card, or worry about the high interest they charge
• Paying in instalments just feels easier to cope with.

The Pay Later effect

Some customers say delayed payment can feel like getting stuff for free, or that it’s more affordable than it really is (because the instalments are smaller).

Because this masks how your money’s doing, you can end up either buying more stuff than you need, or burning through more cash than you mean to. Both can get tricky.

The problem with Buy Now, Pay Later

Buy Now, Pay Later isn’t the store just doing you a favour. You’re actually agreeing to borrow the money from a lender – put bluntly, it’s a type of debt.

Most Buy Now, Pay Later plans don’t charge interest, so you get all the flexibility but only repay the price of your purchases. However, this is only half the story. Just as with credit cards and loans, Buy Now, Pay Later is only free if you repay on time.

Deals vary between retailers and payment plans. Some don’t charge interest on repayments, others are interest-free for a limited time. Always check the details before signing up.

What happens if you miss a payment?

You can be charged late fees on top of what you owe (so now you’re paying more than the cost of your purchases).

Things get stickier if you don’t get back on track ASAP. Your details might be passed to a debt collection agency. Their demands to pay up can be frightening.

Falling into debt could also damage your credit history. This can make it harder or more expensive to get financial services in future – and it can be a real pain.

It’s worth remembering even small changes can turn up the heat. For instance, an extra night out one month could mean you don’t have enough in your bank account to cover an instalment.

This can trigger the lender’s late payment penalties or push you into debt with your bank or other bill providers. Staying organised is the key to getting credit without the hassle.

Have a plan

• Remember it’s called Pay Later for a reason. You have to pay back whatever you spend – it’s not free!
• Don’t assume all payment plans work the same way. Some charge interest, others have expensive late fees. Check the small print each time.
• Make a budget and keep it up-to-date. This is the best way to be sure you can afford your spending or can cover instalments.
• Already paying off one purchase? Think hard before taking on more. The more payment dates you have to juggle, the harder it is to keep up.
• Set alerts and reminders on your phone to check your bank balance before payments are taken.
• If you fall behind, get onto the payment company pronto (some might pause or rejig instalments to help you). Don’t ghost them – it’ll only make it worse.
• Get professional advice from trustworthy organisations if you are struggling.

Buy Now, Pay Later can be a decent way of managing your finances if you’re disciplined about money.

If you’re using it to cover up money problems (like always being skint), you’re better off getting help to review your finances.

Ultimately, Buy Now, Pay Later is a form of credit. It can give you finances a temporary boost, but it can bite back if you take your eye off the ball.

 

@ruthbushi