Buy Now Pay... When?

Buy Now Pay Later (BNPL) schemes are everywhere. Tagged onto the end of purchase pages on websites, or advertised as attractive ‘finance’ options for big buys. 

BNPL can be particularly attractive because they allow you to spread the cost of any purchase. BNPL can be a great way to make larger purchases or to immediately buy something you need, like a car — even if you don't have the full funds available at the time. 

However, BNPL does come with some risks. You should always use BNPL carefully and consider all of the implications of missing a payment or being unable to pay back the total cost of the item or service. 

Here, we explore the rise of Buy-Now-Pay-Later (BNPL) schemes and offer some tips on how to use them responsibly.

H2: The appeal of BNPL‍

BNPL allows you to split payments over time. It’s fast, flexible, and feels like it lessens the financial burden of an immediate purchase. Over 5 million people in the UK used BNPL services in 2022, totalling £2.7 billion in sales.

BNPL works by spreading payments over a set period, often without a credit check or the need for a credit card — which can be very attractive if you don’t have a very good credit score This offers immediate gratification without the upfront cost, and for businesses, it means customers are more likely to buy.

The immediate benefits are obvious, you get to make a purchase you need or want immediately, even if you don’t have the money upfront. But this convenience is not without risks.

The risks of BNPL‍

Since BNPL breaks down the initial payment barrier, people tend to buy more and spend beyond their means. On average, 1 in 3 shoppers use BNPL for purchases they otherwise couldn’t afford.

The real danger comes with missed payments. While BNPL schemes are marketed as interest-free, failing to pay on time can result in 18.9% APR interest charges, debt collection involvement and damage to your credit score.

A Citizens Advice report found that 41% of BNPL customers have struggled with repayments. As a form of credit, BNPL can easily lead to debt, particularly for those already juggling financial pressures.

Tips for using BNPL responsibly‍

To avoid the potential pitfalls of BNPL, here are some best practice tips:

1. Stop and ask yourself, would I still buy this if BNPL weren’t an option?
   This helps ensure you're making a conscious decision rather than an impulsive one.
   
   
2. Know your incomings and outgoings, and factor in emergency costs.
   Making a budget and referring to it before purchasing can help you keep on top of your finances and feel in control of your purchase decisions. Make sure your income is enough to cover the ongoing monthly payment, alongside all of your other outgoings. If you're unsure how to calculate a budget, check out this guide.
   
   
3. Understand the BNPL scheme you’re using.
   Always read the small print to avoid unexpected costs. Make sure you check the APR rate and the consequences of missing a payment.
   
   
4. Set reminders for payment deadlines.
   Write down your payment dates or set phone reminders to make sure you pay on time and don’t accidentally miss a payment.  

Final thoughts

• BNPL can be a convenient tool and allow you to make purchases even if you don't have the full funds available. 
• Missed BNPL payments can often have consequences that may impact your financial wellbeing. 
• Before entering a BNPL agreement, ensure you check the small print and ensure you’re financially able to make all of the repayments on time. 

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