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Buy now pay later

Everything you need to know about Buy Now Pay Later

Victoria Russell
Written by  Victoria Russell
5 min read
Updated: 11 Jan 2024

Read the pros and cons of this popular payment option

The payment option, Buy Now Pay Later has grown in popularity in recent years. Buy now pay later is usually associated with fast fashion and retail shopping. There are now even companies offering buy now pay later for household bills. This payment method allows buyers to spread payments in instalments and essentially pay for goods and services on credit. 

What is BNPL? 

BNPL works by you buying your goods or services using credit provided by the BNPL company, then you pay back the amount over a set period, typically in interest-free instalments. It's a simple concept: buy now, pay later—hence the name. 

Young woman using laptop

Payment Timeframes 

The BNPL landscape is diverse, with each provider setting its own repayment schedules. Some opt for monthly instalments, while others may require a full payment after a set period. This flexibility can be appealing, but it's essential to understand the terms before you commit. 

Repayment Structures 

The terms of repayment can vary widely, with some providers allowing consumers to spread their payments over time, while others offer the option to pay the full sum at a later date. It's crucial to choose a structure that aligns with your financial situation. 

Safety of Using BNPL 

The safety of using BNPL services can be a grey area, largely dependent on an individual's financial health. Unlike a credit card, buy now pay later providers aren’t protected under Section 75 of the Consumer Credit Act. This means there's no safety net if your order doesn't arrive or is faulty. The Financial Conduct Authority has voiced concerns regarding the affordability checks conducted by BNPL providers, which adds another layer of risk to consider. 

Interest on BNPL Purchases 

The major players in the BNPL market—Clearpay, Klarna, Laybuy, and PayPal—do not charge interest, making them an attractive option for interest-averse shoppers. Nonetheless, it's paramount to ensure you can meet the future payments to avoid financial strain. 

Credit Checks by BNPL Companies 

Approaches to credit checks vary among BNPL providers. Klarna, for instance, performs soft credit checks for its payment plans, while Laybuy reviews the credit score of new users upon registration. Openpay also conducts credit checks, adding a level of financial scrutiny to the process. 

Consequences of Missing a Payment 

Failing to make a payment on time can lead to late fees, which differ from provider to provider. Laybuy may charge up to £24, whereas Klarna avoids late fees and interest altogether. Clearpay's fees are capped at 25% of the order's cost or £36—whichever is lower. PayPal stands out by not imposing late fees. 

BNPL vs. Credit Card Comparison 

When weighing BNPL against credit cards, it's important to consider the comparison table (not provided in the summary) to understand the differences in protection, interest rates, and other key factors. 

Features

Buy now pay later (BNPL)

 Credit card

Payment structure

You’ll usually pay through the provider’s app

Option to set up a direct debit

Interest

No interest as long as you pay back by the end of the repaymentperiod

Interest rates will vary depending on type of card and the APR (0% interest deals are available for those with good credit)

Fees

Potential fee if you miss the repayment date

Fees if you miss a payment or don’t meet the minimum monthly repayment

Affordability assessment

At point of purchase only

Thorough check by lender

Credit building

Won’t improve your score, but won’t affect it negatively if you pay back ontime

Responsible credit card use can improve your score. Credit-builder credit cards can help build your credit rating if it’s low.

Credit limit

You’ll have a spending limit set per provider, usually in the £100s

Decided by the lender based on your credit history and otherfactors

Rewards

Unlikely but depends on the provider

Depending on the credit card you choose you may receive cashback or other incentives

Alternatives to BNPL 

Credit cards offer an additional layer of purchase protection, which BNPL lacks. For those considering alternatives, using a credit card can provide peace of mind with its protective measures. Another option is using an overdraft from your current account, which offers a quick borrowing method, though potentially at higher interest rates. Additionally, a loan could be a viable route, with the amount you can borrow hinging on factors like your credit score

Other Useful Guides 

If you want to know more about credit and how credit works, check out our guides: Should I Get A Credit Card? 

The advantages and disadvantages of credit cards 

How to Improve Your Credit Score with a Credit Card 

Kate Hughes
Kate Hughes
Money & Savings Expert

Our expert says

I’ve never been a fan of BNPL schemes, mostly because they encourage impulse buying and risk affordability problems, especially among those who are already struggling financially. There are now plans to make BNPL schemes play by similar rules, or regulations, as other lending. This will include making sure people can afford their borrowing and being clear and not misleading when it comes to advertising. But these rules aren’t yet in place, and there are other, more robust, more appropriate ways to borrow if you really need to.

Compare credit cards with MoneySuperMarket

Here at MoneySuperMarket, we currently do not offer any BNPL products. However, if you’re looking for a credit card, we have a range of great deals for you to compare. 

Just give us a bit of information about you and what type of card you would like and we’ll search the market to show you the best deals to suit your needs. Comparing in this way will not affect your credit score. 

MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this service. Instead we are usually paid a fee by the lenders, but the size of that payment doesn’t affect how we show products to customers. 

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