Buy Now, Pay Later (BNPL) services are becoming increasingly popular as a flexible way to spread the cost of purchases. However, it’s important to understand how these agreements work to avoid any potential pitfalls.
What is Buy Now, Pay Later?
Buy Now, Pay Later allows customers to split payments into manageable instalments rather than paying upfront. Services like Klarna, Clearpay, and PayPal’s ‘Pay in 3’ are commonly used by shoppers in the UK.
While the service is often interest-free, it remains a form of credit, similar to a loan agreement, meaning that missed payments can result in late fees and could impact your credit score. It’s crucial to ensure you can meet repayment deadlines before using BNPL services.
How Does Buy Now, Pay Later Work?
With BNPL, the provider pays the retailer at the point of purchase, and you then repay the provider over a set period, typically a few weeks or months. Klarna, for example, lets users split payments into three instalments, while Clearpay splits them into four.
Although services may appear cost-free, late payments can result in additional fees, making it similar to the terms of a loan agreement. For more details on loan agreements, you can visit https://www.parachutelaw.co.uk/loan-agreement.
What to Watch Out for with BNPL
While convenient, BNPL services are currently unregulated in the UK, offering less protection than traditional credit agreements. Users should be aware that missed payments can lead to late fees and may damage your credit rating. Additionally, BNPL does not offer Section 75 protection, meaning that you may face challenges resolving disputes with retailers.
Can Buy Now, Pay Later Affect Your Credit Score?
While many BNPL services don’t perform hard credit checks, some are now reporting missed payments to credit reference agencies, which can negatively affect your credit score. MoneySuperMarket has a guide on what can impact your credit score.
Buy Now, Pay Later can be a useful tool for managing purchases, but it requires careful planning to avoid fees and credit issues. Always ensure you understand the terms before committing to a BNPL agreement.