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The FCA released a study in February 2021, and one of the primary topics discussed was Buy Now, Pay Later, which more than tripled in size during the pandemic in 2020.

If you’re considering using buy now pay later (BNPL), this article will walk you through the facts, benefits, drawbacks, risks, and other options.

The idea of BNPL isn’t new; it’s been around for a long time because of its capacity to minimise or lessen the pain of having to pay for something.

Buy now, pay later (BNPL) is the fastest growing online payment method in the UK right now.

Buy now pay later

Some Statistics from finder.com

  • Almost 4 in 10 (37%) Brits say they have used a buy now pay later service.
  • BNPL is most popular amongst millennials, with 54% using this payment method. 
  • Klarna was the most popular BNPL app, with 460,000 active monthly users in July 2020. 
  • 44% of shoppers use BNPL for its ease and convenience. 
  • Online purchases using buy now pay later services are growing at a rate of 39% per year. 
  • Almost ten million (9.5 million) Brits said that they avoided buying from retailers that don’t offer BNPL options at the checkout.

To buy my latest gadget, I picked the BNPL option for the first time and was surprised by how easy it was from start to finish.

Table of Contents

What is Buy Now, Pay Later?

Buy Now, Pay Later (BNPL) is a type of short-term financing that allows consumers to make purchases and pay for them at a future date, often interest-free. It can be used both in-store or online

How does Buy Now, Pay Later work?

Once you are done shopping and are about to pay, you opt for the Buy now Pay later option at the checkout.  

If you are approved (you get to know in seconds) you pick one of the various options depending on the company.

  • Pay later: there’s usually an interest-free period of between 14 and 30 days. 
  • Pay in instalments: the amount you owe can be repaid over several months in smaller chunks.
  • Pay on finance: This operates similarly to a loan, and a hard credit check will be performed.
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Pros and Cons of BNPL

Pros

  • A convenient, disciplined way to pay for purchases over time
  • Cheaper alternative to some credit cards
  • A good credit score is unnecessary to qualify
  • Fast approval
  • For serial returners, its gives the ability to try before you buy

Cons

  • Too convenient and can lead to multiple payments which can be hard to track
  • Missing or late payments result in late fees and negatively affect credit score
  • Using BNPL means losing Section 75 consumer protection in the UK

Section 75 is a part of the Consumer Credit Act 1974 that empowers you to make a claim against your credit card company to get your money back if a retailer or trader lets you down and refuses to honour the contract properly – including if it goes bust.

Risk of buy now pay later

Risk

Buy now pay later plays on human psychology to reduce or eliminate the pain of paying for something while also increasing current satisfaction

If not controlled, this results in spending more than anticipated, eventually leading to debt.

People who are already struggling with debt are more likely to go further into debt and financial ruin as payments build up.

BNPL companies market their services to retailers with benefits and data supporting increased conversion, increased sales and bigger checkouts i.e. consumers buy more

This alliance is dangerous for the consumer as it has resulted in an unhealthy push of BNPL in front of consumers who do not comprehend the product

A recent survey of consumers carried out by the FCA in December 2020 found that 11% of consumers (5m individuals) said they had used a BNPL product since the start of the Covid-19 outbreak. The main reasons consumers gave for this greater use since the beginning of the pandemic highlighted providers’ focus on increasing consumer awareness of their offers and on the expansion in the number of partner retailers. Some consumers reported they were using BNPL products to manage their finances because of the financial distress they experienced during the crisis.

To mitigate these risks and protect yourself, make sure you don’t make BNPL your default payment method

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Also, ask yourself these questions 

  • Would I have bought this item in the first place if buy now pay later wasn’t an option? In essence, is this a want or a need
  • How many BNPL agreements do I already have?
  • Do I have, and will I have enough money to make the future payments?
  • Is buy now pay later the best form of credit?

What to do if you’re struggling with debt

Credit card statement

If you’re struggling with debt, I want you to know that it’s possible to get out of it; many people, including myself, have done it, and you can too.

When it comes to getting out of debt, the key is to face the truth, make a plan, and stick to it.

It’s also worth looking into joining a support group that will encourage and push you along this path, as well as seeing what other resources are available to you.

For more information on how to get out of debt, see our post.

What are the alternatives to buy now pay later?

There are other ways to purchase an item, Such as a 0% credit card, 0% overdraft or setting up a sinking fund

In Conclusion

If you struggle with credit cards debt, “buy now, pay later” may push you to rack up even more debt outside of your credit card limitations.

BNPL is still technically a loan, so it is helpful to consider other options.

Finally, you can save for the things you want; this is known as sinking fund, and believe me when I say it’s well worth it.

You can learn everything there is to know about sinking funds by clicking here.