What is BNPL?

BNPL stands for Buy Now, Pay Later and is very similar to a catalogue loan but applies mainly to online shopping. There are several advantages to using buy now, pay later schemes but they are a form of credit, so you should treat BNPL like any other loan or credit product. The common misunderstandings of how buy now, pay later works means that many customers become faced with monthly repayments they can’t afford.

How does BNPL work?

Buy now, pay later is a credit facility that allows you to spread the cost of your online shopping over several instalments, rather than paying for it in one go. Whether it’s £20 or £200, typically the payments are spread over 3 months and interest is usually charged for your borrowing so it will often cost more to repay using BNPL than it will to pay for the item upfront. Where possible, you should try to avoid taking out credit when you don’t really need to – even if you would prefer to have the money available in your bank now. It will cost you more in the long run.

What are the benefits of BNPL?

• Spreads the costs of your purchase
• Allows you to buy expensive necessities that you might otherwise have to wait a few months to purchase
• Can help you to manage your monthly payments

What are the disadvantages to BNPL?

• Accessibility might result in the accumulation of payments being unaffordable
• Might encourage consumers to buy outside of their means
• Missed payments can result in a negative effect on your credit file

Because BNPL is available at almost all online shops and is regularly offered as the first payment option when checking out, it’s a very accessible form of credit. There’s no research or comparison required, like when looking for a payday loan or a credit card, and credit is immediately available – for example, you needn’t wait for the card to arrive in the post.

This kind of available credit could encourage impulse purchases: if you checked your bank account and didn’t have the funds to pay for your items, you might decide to wait until payday. However, with BNPL, you can immediately purchase your desired goods even if you can’t afford them and don’t really need them.

Budgeting can be difficult, but generally you’ll know how much you earn and roughly what your bills come to each month. However, with the possibility of having multiple BNPL payments each month, it can become easy to forget certain payments and under-budget which could lead to missed payments. Missing your repayments can cause serious money problems and make credit harder to obtain in the future.

What alternatives are there?

If you are looking to purchase something you desperately need, such as a new tyre or a washing machine, then BNPL or a catalogue loan might be sensible options. But it’s also worth checking your credit card interest rate or overdraft limit in case the interest rates on these services is less than the buy now, pay later scheme offered by the seller.

However, if you are making luxury purchases, then the best option is to wait until payday, or to wait until you have saved enough over a few paydays to afford the items. It’s always better to spend money you’ve earned rather than borrowed and entering into credit agreements for luxury items reduces the availability of funds for potential emergency expenses that can’t wait until payday.

What if I have too many BNPL commitments?

Occasionally we find ourselves in a position where our financial commitments outweigh our monthly income. There’s no need to panic as there are some easy ways to tackle debt. Create an accurate monthly budget so you know exactly how much disposable income you have. Then, you can see if you have enough to repay your creditors each month without arranging alternative repayment options. You might have to forgo a few nights out, but it’ll be worth it when you’ve repaid all your debts.

If your monthly financial commitments are more than your disposable income, you should get in touch with your creditors and explain the situation. Sometimes, if you send them an income and expenditure form, they’ll be able to offer a tailored repayment plan to suit your financial circumstances. You should always aim to repay your debts as soon as possible, but it’s probably better to have a few months of small repayments to allow you time to catch up on all of your repayments, than it is to have overdue and unpaid loans.