Making last minute purchases is sometimes unavoidable, and as ‘last-minute’ might suggest, it’s often something we haven’t budgeted for. This can result in throwing off your payments for the remaining days until payday or having to borrow money to meet the purchase need. Borrowing money isn’t uncommon, but it is important you make sensible borrowing decisions. Most people use credit cards or overdrafts to account for these kinds of payments and cashflow shortfalls throughout the month. But what do you do if you need to borrow money and you have a bad credit history?

Unfortunately, mainstream credit products aren’t always accessible to people with low credit scores, or those trying to rebuild their credit file and so alternative borrowing options are preferred. Some of these include buy now pay later schemes and short term loans.

What is BNPL?

In short, buy now pay later is like the digital equivalent of a catalogue loan. You can spread the purchase cost over several months – typically 3 or 6 – to make the payment more affordable. Most online shopping now offers some sort of BNPL scheme and you might have seen something like “total: £31.50 or pay £10.50 per month for 3 months” when you view your online basket. Typically, you are offered an interest-free period, and if you haven’t repaid the balance in this time, you will need to continue to repay the amount you borrowed and interest until the balance is settled.

What is a short term loan?

A short term loan, also known as a bad credit loan, is a small amount of cash you can borrow for up to 12 months to meet priority or emergency payments throughout the year. Most short term loans can be found online, and if you are approved the money is deposited into your bank account within minutes. You repay the loan plus interest over your next few paydays.

Is buy now pay later better than a short term loan?

As with most credit products, it’s difficult to compare BNPL and short term loans because they provide a different service. Buy now pay later is restricted to the purchase you are making and the site the purchase is made on. Whereas short term loans are sent to your bank account, so you can make the payment anytime using your usual payment methods. This doesn’t necessarily make one better than the other – it’s really down to your preference and how you like to manage your money.

However, buy now pay later could cause money problems further down the line for customers as it can be easy to forget just how many postponed payments you have to make. BNPL is offered on most online purchases with varying minimum spends which means you could spread almost every purchase you make online. While this may seem like a good idea at the point in time when you are making the purchase, small payments add up quickly and a large chunk of your wages is suddenly accounted for before you’ve even received them.

Short term loans usually have a higher interest rate than buy now pay later schemes, and as such they should be used for emergency or urgent payments only – rather than just any online shopping. Short term lenders in the UK are regulated and authorised by the Financial Conduct Authority which means there are certain restrictions in place as well as codes of conduct which require the lender to treat the customer fairly, among others. Buy now pay later is not currently regulated by the FCA to the same consumer credit requirements. However, there are government plans to have the FCA regulate buy now pay later agreements in the future.

It’s difficult to determine which type of credit you should use without reviewing your exact circumstances, but in any case, credit usage should nearly always be reserved for unexpected essential expenditure. If you find you are frequently tempted by buy now pay later schemes, perhaps consider if your budget lends itself to your lifestyle or if you need to make some changes to your shopping habits to fit within your budget. We can all be guilty of making luxury purchases, but they shouldn’t put you in debt or make it difficult for you to manage your cashflow.

Whether you decide to spread the costs of your online purchase using BNPL or you use one of instant short term payday loans instead, consider your future financial commitments and how urgent the purchase is. Most online shopping can wait until you’ve saved up enough cash to buy outright – or at least, it can wait until next payday. It’s always better to use your income for non-priority payments than it is to borrow money – even if you can repay within the interest-free period.