What are buy now pay later purchases?

If you’ve ever shopped online you’ve probably seen the option to ‘buy now pay later’. It is often facilitated by companies such as Klarna, Clearpay and Laybuy – and there’s also more traditional catalogue finance from online retailers like Very.co.uk and Littlewoods.

While it might be tempting to delay payment – and the adverts can often be very enticing and sometimes misleading - it often can be a slippery slope to being tangled in debt.

What is buy now pay later?

Buy now pay later agreements are also known as store finance. They’re a way for you to purchase goods on credit and pay for them usually after a set interest-free period, or in instalments.

While you can use this payment method at some high-street shops, it’s more commonly used by catalogues and online retailers. They’re often aimed at young people and families.

Common buy now pay later providers include Klarna, Clearpay and Laybuy.

Some agreements will let you pay after a set period of time (hence the name), while others will let you pay for your purchases in instalments (sometimes called ‘slices’).

This type of finance has existed for years, but recently, some companies have popularised it with younger consumers, thanks in part to slick ad campaigns with A-list celebrities from popular TV shows.

These adverts will often not highlight the risks of paying in this way.

Risks can include:

  • damage to your credit rating if you are late or missed a payment
  • charging high interest and fees if you can’t afford to pay what you owe on time.

The adverts sometimes target people on social media who might be less able to afford the items and encourage them to buy now and pay later.

It’s not just the buy now pay later providers that do this, some online retailers, especially clothing retailers, do too.

Buy now pay later is very easy to use, with efficient technology and with low minimum spends of just £10.

So it’s no surprise that lots of people are tempted to use it to pay for shopping.

But it’s easy to not realise the massive negative impact it could have on your debt and credit rating if you don’t keep your repayments on track.

What will I be charged?

Exact charges vary by provider, but as a rule how much you could pay depends on the payment type you choose.

Pay in instalments

This is where the total amount of your purchase is split into a few segments – typically three or four. You usually have to make one payment upfront and give the provider permission to take payment for the rest of the instalments later.

If you miss these later payments you’ll be stung with pricey ‘late payment fees’. These fees will build up if you continue to miss payments.

Pay later

This is where you delay payment for the total amount of your purchase for a set number of days – typically 14 or 30. You won’t have to give payment details upfront, but you will have to pass a ‘soft credit check’ before your purchase is accepted.

When it comes to make payment you’ll usually get a reminder.

But don’t miss a payment as it can be passed onto debt collection agencies if you don’t pay in time. This can be scary, especially if you’re vulnerable, and it can easily get very expensive.

Stepchange has some guidance on what to do if your debt is passed onto a debt collection agency.

Pay on finance

This is the most traditional form of buy now pay later. You’ll have to agree to a formal payment plan upfront, you may be charged interest and you will be credit checked when you apply.

Lenders should tell you the APR (interest rate) you’ll be charged before you take out the finance.

If you miss payments you will be charged fees and there will be a negative impact on your credit report.

Will buy now pay later affect my credit score?

As with charges and interest, exactly how it affects your credit score will depend on the payment type you choose.

Pay in instalments

You’ll probably undergo a soft credit check. This verifies your address, date of birth and who you bank with.

Missed payments may not always be reported to your credit reference agency or appear on your credit report.

Pay later

If you miss the payment date it will negatively affect your credit score.

Your missed payment can also be passed onto debt collection agencies if you don’t pay in time which can have a further negative impact on your credit score.

Stepchange has some guidance on what to do if your debt is passed onto a debt collection agency.

Pay on finance

As you’ll have to agree to a formal payment plan upfront, you will be credit checked when you apply.

This is a ‘hard check’ which looks at your credit report and means you can be rejected if the lender decides it does not want to lend to you.

Citizens Advice has some guidance on how lenders decide whether to give you credit.

If you miss payments you will be charged fees and there will be a negative impact on your credit report.

How can I keep track of my buy now pay later purchases?

If you have made buy now pay later purchases it’s important you keep a record of how much you’ve paid, and when your payments are due.

You should also draw up a budget to make sure you have enough money to make each payment, otherwise you could get caught out by expensive late payment fees.

Use our quick cash finder to help you.
Use our Budget planner to see where you can make long-term savings.

What happens if I miss a payment?

If you have missed a payment contact your lender to explain your situation. You should avoid taking out more credit unless you know you can afford to pay it back.

These guides can help you talk to your lender:

What to do if you’re struggling with something bought on finance on the Citizens Advice website.

Dealing with buy now pay later debt on the StepChange website.

When to get debt advice

If you’ve already missed payments and are not able to come to an agreement with your lender, it’s best to get advice as soon you can, especially if you’ve got other debts as well.

See our guide on how to prioritise your debts to help you work out which ones to pay off first.

Find out more on the StepChange website about how debts are collected when you are in arrears.

Citizens Advice have more information about how to make a plan to pay your debts.

Check out StepChange’s guide on how to reduce your outgoings to help you catch up with your payments.

Find free confidential debt advice online, over the phone or near to where you live using our debt advice locator tool.

Can I use buy now pay later if I’m on a debt solution plan?

Usually, if you’re on a debt solution such as a debt management plan or an individual voluntary arrangement it’ll be against the rules to take out additional credit, such as a buy now pay later agreement.

However, there may be exceptions. StepChange has some guidance that can help.

Alternatives to buy now pay later

The idea of having purchases delivered now that you don’t have to pay for until later might seem appealing, but interest charges can be high, and it’s easy to get caught in a trap of relying on debt to make future purchases.

If there’s specific purchases you need to make, it’s worth looking at the alternatives to buy now pay later.

Cut back or save up

See if there is any way you can cut back on other household expenses to find the money you need.

Use our quick cash finder to help you.
Use our Budget planner to see where you can make long-term savings.

If what you need to buy isn’t urgent, then see if you can save up the money first. It might take a while, but it will cost you less than borrowing the money.

Use our savings calculator to work out a plan.

Buy clothes second-hand

It might not have the same instant gratification as buying cheap clothes online brand new, but if you’re willing to spend some time, you can find some gems in charity shops, or from online stores like eBay and Gumtree.

Best of all, prices will likely be cheaper, and if you do a budget, you’ll know how much you can afford to spend.

MoneySavingExpert has some tips on finding bargains in charity shops.

Authorised overdraft

If you need to replace something urgently, you might be able to use your interest-free authorised overdraft limit if you have one. Overdrafts should only be used for emergencies or as a short-term option.

Personal loans

Personal loans can offer good rates of interest, depending on your credit score. However, you might end up borrowing more than you need as most lenders will not offer loans of less than £1,000, which might be more than the amount you need for a household purchase.

Check out our guide on personal loans.

Credit cards

Credit cards are another option, but you need to be sure you can make more than the minimum repayment each month. If you can’t afford to make significant repayments, borrowing on a credit card can be very expensive.

Credit unions

Loans from credit unions can be cheaper than from other lenders when compared to high cost credit providers and you can pay the money back at a rate you can afford. Repayments are based on an affordability assessment which ensures the borrower can keep up with the repayments.

Find out more about borrowing from credit unions.

Responsible Finance

If you’ve been turned down for credit by high street lenders, then you can look at fair finance providers. Their interest rates are lower than high-cost credit providers but generally higher than a credit union. Repayments are based on an affordability assessment which ensures the borrower can keep up with the repayments.

Find a fair finance provider in your area on the Responsible Finance websiteopens in new window.

Pawnbrokers

Pawnbrokers are another option where you leave something valuable, such as jewellery, as security for a loan. The rate of interest you will be charged is usually higher than a high street bank and it’s unlikely you will get a loan for the full value of the item, but you will get a quick decision.

Borrowing from friends and family

Borrowing from friends or family might be an option which helps you avoid the risks of high-cost borrowing. Make sure you and the person you’re borrowing from:

  • work out an affordable repayment plan
  • discuss what will happen if you’re late or cannot afford to repayments
  • put your agreement in writing

Borrowing from a member of your family or a friend can often lead to damaged relationships should you not be able to pay back what you owe

If you’re claiming benefits

If you’re on certain income-related benefits, including:

  • Income Support
  • income-related Employment and Support Allowance
  • income-based Jobseeker’s Allowance
  • Pension Credit
  • Universal Credit.

you might be able to apply for a Budgeting Loan (or Budgeting Advance if you’re on Universal Credit) to cover the cost of:

  • furniture
  • baby items (such as cot or pram)
  • household appliances (such as cooker or fridge)
  • clothing or footwear
  • work clothes or tools
  • travelling expenses
  • childcare costs to cover training courses.
Discover more about Budgeting Loans and Advances.

Local welfare assistance

If you’re struggling to pay for an essential household item like a cooker, fridge or washing machine and you are getting certain benefits you might be able to find one through your local council’s welfare assistance scheme.

Some local authorities might also give loans to help you buy what you need:

How to avoid high-cost credit

If you can’t take out a buy now pay later agreement and you would find it difficult to use the mainstream credit options, like an overdraft, personal loan or credit card you might be tempted by other kinds of high-cost borrowing like payday loans or doorstep lenders.

These forms of credit can work out to be very expensive and you need to think very carefully before you decide to borrow in this way. Before you make a decision read our guides.

Home credit or doorstep lending.

Payday loans – what you need to know.

What are logbook loans?

Avoid loan sharks.

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