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Buy now pay later and bad credit?

Can I use buy now pay later if I have bad credit?

Buy now pay later allows you to make purchases but hand over the money at a future date. But can you use a payment plan like this if you’ve got a poor credit rating?

By Tim Heming

Published: 24 June 2021

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Will I be accepted for buy now pay later with bad credit?

You may find it more difficult to be accepted for buy now pay later if you’ve had debt problems in the past and you've got a low credit score. But it depends on the provider and the type of payment plan you want.

Buy now pay later (BNPL) essentially means you’re being lent the price of the item you want to buy – and agreeing to pay it back in the future. This might be through a few monthly instalments or paying the lump sum back at a later date.

Many BNPL providers conduct a ‘soft search’ on you – which means they’ll check your name, address, date of birth and who you bank with. But they won’t necessarily check your credit history and rating. This means it may not matter if you have had debt problems in the past and have a low credit score – you may still be given the BNPL deal.

But in some cases the BNPL provider will take a different approach. Some will check your credit score before deciding whether to approve your application. So if you’ve got a low score you could be refused.

Not sure if you have bad credit? It’s worth checking your credit score before you apply for buy now pay later. It could be that there are some easy fixes you can make to improve your credit rating.

Should I use buy now pay later if I have poor credit? 

Using buy now pay later only makes sense if you have the money to repay when you need to. Miss a payment and you’ll be faced with late fees and high interest charges.

If you already have poor credit this could be an indication that you've had money problems or struggled to handle your finances in the past so tread with caution when it comes to BNPL.

You run this risk of further harming your credit score if the BNPL provider reports the missed payments to the credit reference agencies. This could make it much harder to be accepted for credit in the future.

Will buy now pay later companies do a credit check on me?

In most cases the BNPL provider will carry out a ‘soft credit check’ before your purchase is accepted. This means they’ll search your credit record to decide whether to accept you for a buy now pay later purchase, without leaving a ‘footprint’ on your credit file.

If you’re concerned ahead of applying for buy now pay later, you may want to ask your provider what checks it will run first.

Am I more likely to be accepted for buy now pay later than a credit card with bad credit?

It’s hard to judge whether you’re more likely to be accepted for BNPL than a credit card when you have bad credit. Your likelihood of being accepted will depend on a range of conditions and will be up to the buy now pay later provider or the credit card deal for which you’re applying. Different providers will have different criteria and thresholds.

Some BNPL providers may be hesitant to let you use their service if you have bad credit. Equally, you could be declined for a credit card or not offered the best rates. 

Is buy now pay later always interest-free?

While many buy now pay later offers are interest-free, sometimes for up to 12 months, it will depend on which scheme you sign up to.

For example, if you choose to pay in instalments, you might find interest is included upfront making the overall amount you pay higher than if you’d bought the item outright.

BNPL can become very expensive if you miss a payment and get charged late fees and interest. This can soon make your debt much larger.

How can buy now pay later affect my credit score?

Using buy now pay later could affect your credit score, but not always negatively.

If you buy more than you can afford through BNPL and start missing payments, then the provider may pass on this information to the credit reference agencies and it will be recorded on your credit file – and could harm your credit score.

On the other hand, if you have a low credit score or haven’t borrowed in the past – perhaps because you have just turned 18 – then showing you can handle credit responsibly through buy now pay later could boost your credit score. But only if you choose a BNPL plan where the provider will record information with the CRAs – so it goes on your credit file. And not all providers do this. 

If this is something that is important to you – check with the BNPL provider before signing up to a payment plan.

What is the impact of having a bad credit score?

Having a low credit score doesn’t just mean you could be turned away from buy now pay later purchases, it can affect you at any time when you might need credit, such as getting a new mobile phone contract or applying for a first mortgage.

A bad credit score can mean you’re offered higher interest rates on a mortgage or have less choice of lender, when you want to borrow money to buy a house. It could mean you are turned down for a personal loan, or credit card, or offered one at a higher rate of interest.

What are the alternatives to BNPL when I have bad credit?

MoneySuperMarket does not offer any BNPL products. If you have bad credit there could be other options available that may suit you better than buy now pay later, including:

Save up and buy later

Is the purchase you want necessary right now or more of an impulse buy? If it’s the latter, consider putting the money to one side bit by bit and paying for it outright when you have enough saved. This can help build a savings habit and also stop you taking on more debt - and running the risk of further damaging your credit rating if things go wrong and you struggle to pay it back.

Credit building credit card

Credit building credit cards are credit cards specifically designed to allow you to borrow and have the chance to improve your credit score. They typically offer higher interest rates and lower credit limits, and it’s important to pay off the outstanding balance in full each month so you don’t fall deeper into debt. But if you use them responsibly they can help boost your credit rating so you can apply for credit at lower rates of interest in the future.

Credit unions

Credit unions provide loans, savings accounts and current accounts to more than one million people across the UK. A credit union loan is based on an affordability assessment, which means you can pay back the money at a rate you can afford. It may be a cheaper way of borrowing than from other high street lenders. In some cases you may need to save small amounts with the credit union in order to be accepted for a loan. Many credit unions operate in specific geographical areas.

Personal loan

While you might not be offered the best rates on borrowing, some lenders do offer personal loans for those with poor credit ratings. If you can keep up with repayments, it can also help you improve your credit score to make borrowing easier in the future. Often there’s a minimum loan amount. If the minimum amount is far more than you need to borrow, a personal loan is probably not the best option.

Secured loan

If your poor credit history stops you being able to borrow in other ways, you may be able to take out a secured loan. This lets you offer an expensive item like a house or car as security, so the lender knows they can get their money back if you stop making repayments. Remember though if you struggle to keep up with repayments your asset is at risk and you could end up having it repossessed by the lender.

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