Buy Now, Pay Later explained: Everything you need to know about shopping with BNPL
Buy Now, Pay Later (BNPL) is a popular way to shop, offering people the chance to buy items on credit and pay the money back over time. It’s popularity has only grown in the online shopping boom since the beginning of the pandemic.
While Buy Now, Pay Later offers flexibility, however, it can also encourage people to buy things they can’t afford, and can be a gateway to future debt problems. That’s why Creditfix has created a guide to BNPL – Buy Now, Pay Later Explained – to give you all the information you need to understand shopping with BNPL.
What is Buy Now, Pay Later?
Buy Now, Pay Later is a popular payment method that’s used both in-store and online. It involves customers purchasing goods on credit, then repaying that credit over a period of time, usually interest-free.
The concept is relatively simple. Rather than paying for goods in cash, you can simply select the Buy Now, Pay Later option instead.
Whether you’re buying clothes, shoes, or a new television, you will receive the goods the same way you would if you had bought them outright, and pay for them afterwards.
How does Buy Now, Pay Later work?
There are several powerful Buy Now, Pay Later firms dominating the market, including Klarna, Clearpay, and Laybuy.
Their model works like this:
– A Buy Now, Pay Later firm goes into partnership with a popular retailer
– That retailer offers Buy Now, Pay Later as a payment method
– The customer selects the Buy Now, Pay Later option at checkout (whether that’s online or in-store)
– The customer receives their items immediately, and pays them back over time
In this model, the BNPL provider is footing the bill upfront, and paying the retailer on the customer’s behalf. Once the customer has received their items, they will usually have a set amount of time to pay the BNPL provider back.
How long you have to repay depends on which provider you use. Some companies give you 30 days, while others will be happy to wait up to 12 months. BNPL payments are interest-free, meaning as long as you pay on time, buying an item with BNPL will cost the same as purchasing it outright.
If Buy Now, Pay Later is interest-free, isn’t it a good thing?
In theory, yes. Flexibility is key to the Buy Now, Pay Later model. Companies pitch it as offering an easy alternative to waiting for payday, giving you the time you need to get your money together while at the same time not missing out on that must-have bag or pair of shoes.
This flexibility is why Buy Now, Pay Later is so popular with millennials, with 67% having used it as a payment method at least once. It’s also no coincidence that millennials are the age group most likely to be working on zero-hours contracts, and living paycheck to paycheck.
Along with its flexibility, Buy Now Pay Later is also presented as non-threatening. Powerful figures in the BNPL market pitch it as a group of plucky startups ‘fighting the bank establishment’, while users often treat it differently than they would other financial products.
Are there problems with using Buy Now, Pay Later?
At surface-level, Buy Now, Pay Later simply gives people more time to pay for purchases. The majority of BNPL purchases are for lower-value goods, like clothes and shoes – nothing that would make users think they might have a problem paying later.
And Buy Now, Pay Later is so easy to use. It’s a service offered by nearly all major retailers, and it’s offered to customers regularly – up to 46 times during a typical shopping process, according to Good Housekeeping. That wouldn’t happen if Buy Now, Pay Later represented a risk. Right?
While flexibility and ease of use contribute to the popularity of Buy Now, Pay Later, they also contribute to its major flaw – many people don’t fully understand what they’re getting involved in when they shop with BNPL.
There’s a lack of clarity around Buy Now, Pay Later as a financial product. The big firms like Klarna, Laybuy, and others are careful to market their product as an easy and helpful option for young people waiting on their next paycheck, rather than a credit agreement with strict rules on repayment.
This lack of information around Buy Now, Pay Later has led to several high-profile campaigns to raise awareness, and that pressure has ultimately seen the Financial Conduct Authority (FCA) call for full regulation of Buy Now, Pay Later credit.
Does Buy Now, Pay Later lead to debt?
Because it’s easy to use and heavily marketed, many people make several Buy Now, Pay Later purchases a month, and it can encourage people to buy things they wouldn’t otherwise be able to afford.
This is a particular problem for young people, who are more likely to use the kind of sites and brands that offer BNPL, but less likely to fully understand what it entails.
Buy Now, Pay Later is often used to buy smaller-ticket items, like a new coat or a pair of shoes. That encourages people to use it more often – to buy an entire outfit, for example. But each item in that outfit represents a debt, and a number of small debts can become a big problem.
It’s not always easy to keep track of Buy Now, Pay Later payments, especially if you’re using multiple sites that each have their own repayment policy. And while payments may be interest-free, any late or missed payments will result in a charge. Like any other debt, once you start missing payments, things can quickly spiral out of control.
To be clear, when you use Buy Now, Pay Later, you’re taking out a loan. Just like any other loan, you’ll be expected to pay back what you owe. If you don’t pay back in full and on time, you can expect fees, charges, and even long-term damage to your credit rating.
How can I make sure I don’t get into trouble with Buy Now, Pay Later?
It’s easy to see why Buy Now, Pay Later is so attractive to so many people – after all, when used responsibly, Buy Now, Pay Later can be a flexible way to pay for items over time, and it doesn’t have to cost you a penny extra.
But with so many people struggling to meet Buy Now, Pay Later repayments, just how do you use Buy Now, Pay Later responsibly? And what are some of the pitfalls you should be looking out for?
You’ll find the answers in the Creditifix guide to BNPL, Buy Now, Pay Later Explained, which will help you understand;
– What BNPL is
– How BNPL works
– The dangers of using BNPL
– How to use BNPL responsibly
To get all the information you need on Buy Now, Pay Later, you can read our guide in full here.