As the name suggests, this type of scheme allows consumers to buy goods – typically from a standard retailer – and pay for them in the future, usually without having to pay any interest. Payments are typically deferred for 30 days but this can vary by provider, or items can be paid for in regular instalments.
Although you often won’t be charged interest on what you owe for this initial period, if you miss any of the repayments, you’ll usually have to pay late payment charges and it could damage your credit score, making it harder for you to borrow in future.
More than five million people used Buy Now Pay Later plans, provided by companies such as Klarna, LayBuy and ClearPay, to purchase £2.7 billion worth of goods last year alone. With many people feeling the pinch due to the pandemic, it’s not surprising that the idea of not having to pay for your purchases there and then might be an appealing option.
Buy Now Pay Later schemes aren’t necessarily a bad thing, as long as they’re managed carefully and those signing up for them are certain they can afford to pay off what they owe before any interest gets charged. The major concern however, and the reason for their popularity amongst retailers is that they can incentivise people to make purchases that they might not have made otherwise. In some cases people may be unable to pay back what they owe, or simply spend more than they’d perhaps budgeted for.