Buy now, pay later, or BNPL, is a new face for an old type of loan service as BNPL is essentially a catalogue loan. It’s a very popular way for people to purchase products while online shopping as buy now, pay later allows consumers to spread the cost of the purchase over several instalments. At first, this may seem like a great way to shop, however, like most loan services, buy now, pay later schemes usually charge an interest rate which means you can end up paying far more for the product than you need to.

Buy now, pay later vs catalogue loans

Buy now pay later is a catalogue loan alternative. The term “catalogue loan” now sounds pretty outdated as most people shop online or in store and very few people actually buy through catalogues or magazines anymore. As with most industries, technology is improving and diversifying the way we can borrow money.

How does buy now, pay later work?

Buy now, pay later is a loan you can borrow for a very specific purpose. Rather than taking out a payday loan which you can spend on various things, BNPL is specific to the product you are purchasing. This means it’s possible to have multiple loans at the same time, even if you only have one BNPL account.

When you get to the checkout section of your online shopping, you might see a dialogue box advertising smaller instalments spread over a longer period for the qualifying products in your shopping basket. Buying this way means you can spread the cost of your shopping over a few months, but this usually means interest will be applied and it should entail a credit check to make sure that you can afford to make the repayments.

How does the interest on buy now, pay later work?

As a new customer, many buy now pay later options will let you borrow interest free for the first few months (usually three), so as long as you can afford to repay your borrowing within that time, you are effectively getting an interest free loan. However, if you can’t afford to repay your loan within the interest free timeframe, you may find yourself faced with interest charges on top of the original cost of the product.

Additionally, promotional offers are usually limited to a one-time use which means after you have signed up and used the interest-free period once, you probably won’t be able to use it again. While it might be helpful if you are desperate for a new washing machine and it just can’t wait until payday, using BNPL for unnecessary shopping expenses like new clothes isn’t such a good idea because you’ll likely end up paying more than if you waited a few days until payday.

How often can I use BNPL?

Like any loan, you must think about your financial responsibilities, not only at the time of application but also at the time of repayment. Taking out too much credit may result in you being unable to meet your repayments which will make credit harder to obtain in the future, as things like missed payments do get reported on your credit file.

Because you can split the cost over a few months, it’s easy to think that the purchases are affordable. For example, paying £50 a month for 3 months might sound more affordable than paying £150 in one go. However, if you buy three different items, all at £150 and split the cost over three months, you are still paying £150 per month. What might seem like small repayments at first can quickly rack up and you could find a large proportion of your income is being spent on these kind of loan repayments.

Ultimately, if it’s not necessary and you can’t afford to pay for it in one go, you should probably wait until you’ve saved up enough to buy it outright. This way, you save on interest and you save the risk of damaging your credit file.

When should I use buy now, pay later?

Like almost all credit products, you should only really use buy now, pay later when you absolutely have to. This doesn’t mean buying a new outfit for yet another wedding, it means covering the costs of things that would make general day to day living difficult to do without. For example, a new fridge, an oven, or a cot for an on-the-way baby. There are a wide range of circumstances that might require expensive necessities for which you can’t immediately afford to cover the full cost.

What if I can’t make my BNPL payments?

Sometimes, life gives you lemons and your finances can take a real hit trying to cover the cost of unexpected expenses – we are all human and good money management skills don’t come easy to everyone.

If you do find your financial commitments are starting to outweigh your disposable income, it might be time to sit down and reassess your monthly budget. Whether it’s refraining from weekly coffees or cancelling a few unnecessary subscriptions, by doing a quick budget sheet you might find that you are spending money where you don’t need to and that money could be put towards paying off your creditors.

However, money troubles can be tricky to deal with, so if you feel that it’s a bit overwhelming, it might be worth talking to a friend or getting in touch with a free and impartial debt advice service who can offer advice based on your financial circumstances. Debt doesn’t have to be scary and it’s better to deal with it sooner rather than later.