Buy Now Pay later. Sounds good, doesn’t it? Over 17 million Brits have used this payment scheme to buy goods, but it’s important to be fully aware of the financial risks linked to this appealing money-spreading option.
Buy Now Pay Later companies such as Klarna, Laybuy and Clearpay are quickly becoming popular amongst online shoppers, with the promise of interest-free instalments later down the line. On paper, this agreement sounds great, but there are potentially damaging consequences of regularly using these services.
Buy Now Pay Later firms have increased their popularity massively over the past few years, offering shoppers different payment instalment options, sometimes not asking for any repayment until a few months later. Although this payment method can be handy, spreading costs when paying for one-off purchases, some Buy Now Pay Later options can negatively impact your credit score and result in debt collection if payments are missed.
The appeal of receiving an item before spending any money can also easily lead to overspending, creating a slippery slope to out of control debts.
It’s really important to fully understand what you’re signing up for when using a Buy Now Pay Later method and not forget about any upcoming payments and deadlines. Reports from the Citizens Advice charity found that 10% of consumers who use Buy Now Pay Later payment options end up being contacted by debt collectors.
It’s also worth considering how potential future mortgage lenders may view your usage of Buy Now Pay Later. Some lenders can potentially view your use of this payment method as a sign of financial stress and be more reluctant to provide you loans and mortgages. Other lenders may see quick and on-time repayments as a positive trait of a responsible mortgage borrower. Either way, it’s important to fully understand the possible impacts that Buy Now Pay Later brings to the table.
Buy Now Pay Later companies make their money by taking commission from the retailer directly – meaning they don’t need to charge anything to customers. The way the scheme works means that it isn’t viewed as a regular credit agreement.
As things stand, there is no legal requirement for Buy Now Pay Later lenders to carry out credit checks on consumers and because of this, most don’t. This means that these payments might not appear on your credit file or affect your credit score.
However some lenders, such as Laybuy, do carry out more in-depth credit checks which can very much affect your credit score and ability to be granted loans. Late payment fees also come into play if you miss instalments with Clearpay or Laybuy. These companies charge an extra £6 when payments are late. A healthy approach when using a Buy Now Pay Later payment option is to consider the transaction as a debt and as such, treat it as a debt.
With a growing number of Buy Now Pay Later companies joining the market, it’s useful to understand how repayments differ between each company.
Arguably the most well-known company, Klarna offers users multiple payment options. The Swedish firm allows you to pay the whole amount of your order 30 days after purchasing it, or gives the option of settling up your debt in three instalments – taken on the day you make the purchase, 30 days after and 60 days later once more.
Kiwi company Laybuy requires even less from you – breaking payments up into six manageable instalments, with the first being taken on the day of purchase, and the remaining five taken weekly.
We’ve compiled a list of some of the most popular Buy Now Pay Later companies below to help you understand what services each can provide.
Known for their fantastic customer service, Klarna is a popular choice with consumers and the company remains one of the few companies to guarantee no late-repayment fees or interest.
Klarna’s main products are the “Pay in 3” and “Pay in 30” options and the Swedish firm is also launching a new card, soon to be available for use in any physical store.
Another one of the UK’s most trusted Buy Now Pay Later providers is New Zealand firm, Laybuy. Differing from Klarna, Laybuy does incur charges for missed payments. This additional payment is £6, with a maximum fee capped at £24 for four late fees on one particular loan.
Laybuy offers users the option of paying for their purchases in six weekly instalments, the first taken on the day of purchase and the following five to follow each week.
However, when you apply to use Laybuy, you will be subject to a hard credit check which could have a negative impact on your credit score.
Clearpay is another one of the UK’s favourite Buy Now Pay Later companies. The app itself is really simple to use and you can easily manage all of your payments from your phone. Clearpay does have its drawbacks though. Unlike competitors, users have to put at least some money down at the point of purchase. Clearpay also adds a £6 late fee onto their orders, again pushing many shoppers to well-known Klarna.
Although Buy Now Pay Later schemes are a form of credit, they work differently from credit cards. When paying with a company like Klarna, you won’t receive Section 75 protection for your purchases. Section 75 protection holds your bank jointly liable if anything goes wrong with any purchases over £100 and up to £30,000 made on your credit card.
If you experience a missing delivery or faulty product, a Section 75 claim can be made with your credit card provider and you should be able to get your money back. As Buy Now Pay Later schemes aren’t covered by Section 75, you should consider using your credit card for larger and more important purchases. Whichever Buy Now Pay Later firm you choose to use, it’s always so important to protect your financial future.
Without doubt, Buy Now Pay Later payments can be a really useful option for making certain purchases, but it’s crucial to stay aware of the potential risks associated and to make sure you always pay instalments on time!
For any further information on anything, please reach out to our Green team at: 01244 955 399
