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Buy now pay later

What is buy now pay later?

published: 20 June 2022
Read time: 5 minutes

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 buy now pay later?

Buy now pay later (BNPL), is a payment option that allows you to buy goods and services on credit and pay for them later. This is usually done by making regular interest-free payments, for example three monthly instalments. You are essentially buying something now but paying for it ‘later’. 

The timeframe for the payments can vary and is dependent on the provider. Sometimes you will have to pay in monthly instalments or pay what you owe in full at a later date. 

While MoneySuperMarket doesn't offer BNPL, it has become popular payment option among young people as a way to spread the cost when shopping, both online and in store. The service has become so popular that more than nine million consumers say they’d avoid buying from retailers that don’t offer BNPL as an option at the checkout.* 

*According to Finder UK data, March 2021 

Young woman using laptop

How do repayments work with BNPL? 

How you’ll be charged under BNPL will depend on the structure of the product and policy of the provider. But these are two of most common ways: 

Spreading the payment out: The most common form of BNPL is when you can spread the payments out through weeks and months. Popular BNPL provider, Clearpay, usually requires you to make four payments, for example, beginning at purchase. In contrast, your last Klarna payment will typically be six weeks after purchase.  

Paying the full sum later: Some BNPL providers will allow you to pay for the product on credit and then pay the full sum at a later date. For example, Klarna gives you the option of paying nothing at purchase and then making the full payment up to 30 days later. 

Is it safe to use BNPL?

Whether buy now pay later is a safe option will depend on your personal, financial circumstances but there are some factors to consider when deciding whether BNPL is right for you.

Unlike a credit card, buy now pay later providers aren’t protected under Section 75 of the Consumer Credit Act. With a credit card, if you buy anything worth between £100 and £30,000 and your order doesn’t arrive or is faulty, you can claim the money back from your card provider. This isn’t the case with BNPL.

It’s important to note that buy now pay later isn’t regulated under the Consumer Credit Act so if something goes wrong you won’t be able to complain to the independent Financial Ombudsman Service – an important layer of protection for consumers. Instead each BNPL provider has its own protection policy in place so check this first when using their service so you know where you stand.

The financial regulator the Financial Conduct Authority has said BNPL providers must pay closer attention to whether a customer can afford to use the product as it has concerns about affordability checks.

Consider your financial situation to decide whether using a buy now pay later service would be a safe option for you or whether you risk getting into debt. If you have a history of bad credit or struggles with debt, using a BNPL service could increase the chance you run into potential money problems if you miss payments further down the line.

Do I have to pay interest on my BNPL purchases? 

The four major BNPL providers; Clearpay, Klarna, Laybuy and PayPal do not charge interest. Interest-free borrowing can make buy now pay later seem like a more attractive option when it comes to paying. However, it’s important to remember that when using BNPL, you need to be confident you have the money to cover that you owe. Buy now pay later helps you split payments into chunks, but you will need to repay in full by a set date in the future. 

Do BNPL companies conduct credit checks? 

On its website, BNPL provider, Klarna says it conducts soft credit searches as part of its eligibility check for Pay in 30 and Pay in 3 payment plans.   

Laybuy carries out credit checks on all new users when they register, so it can find out their credit score. You can begin shopping with Laybuy once your credit score has been confirmed and your account is verified. Openpay is another BNPL provider that performs credit checks. 

What happens if I miss a payment? 

Depending on your BNPL provider, you could be made to pay late fees. If you continue to rack up missed payments these can be even more costly than your original purchase. 

This is what the main providers charge: 

Laybuy: Laybuy charges late fees of £6 -  which can be charged twice per missed payment, meaning it’s £12 per instalment. Laybuy’s fees are capped at a maximum late fee of £24. 

Klarna: Klarna says they do not charge late fees or interest. 

Clearpay: Clearpay will charge you a late fee of £6 for orders under £24, you’ll only be charged this once. However, for orders over £24, you will be continually charged late fees. The fees are capped at 25% of the order's cost or £36 (whichever is less). 

PayPal: PayPal does not charge late fees. 

Should I use BNPL or a credit card?

Not sure if you should give buy now pay later a go, or use your credit card? We’ve put together this table to compare BNPL to credit cards:

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

What are the alternatives to BNPL?

There are other ways to spread the cost without using BNPL: 

Credit cards: Another way to spread the cost is by using a credit card. Unlike BNPL, credit cards come with an extra layer of protection if there’s a problem with your purchase. Under Section 75 of the Consumer Credit Act, if something goes wrong with your purchase (where you’ve spent between £100 and £30,000 on the card) you can claim the money back from your credit card provider. 

Overdraft: If your current account has an overdraft, you can use it as an alternative to buy now pay later. Agreed overdrafts are a quick and convenient way to borrow but be mindful that interest rates can be high if you can't then get back into the black within a reasonable time. 

Loan: Taking out a loan is when you borrow a certain amount of money and agree to pay it back within a certain time period. Loans usually come with interest and how much you can borrow will be dependent on a range of factors, including your credit score

Other useful guides

If you want to learn more about credit cards, we have a range of guides you can read and help you get to grips with the world of credit. 

Should I Get A Credit Card? 

The advantages and disadvantages of credit cards 

How to Improve Your Credit Score with a Credit Card 

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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