How to shop smart with Buy Now Pay Later

In times of financial hardship, it’s no surprise that many borrow more in order to make ends meet. Typically, this is in the form of a loan, credit card, or overdraft but other methods that are rising in popularity are Buy Now Pay Later (BNPL) and retail finance.

BNPL is becoming increasingly popular and tends to be used for clothes or entertainment purchases. The UK market is small compared to some other European countries, but growing quite considerably.

Over the past year, the number of reviews for BNPL and other retail finance providers left by our Smart Money People community has doubled, showing an increase in those using these financing services. With the ongoing increase in the cost of living, many will have resorted to BNPL for everyday expenses such as their weekly shop.

What makes BNPL an attractive finance solution?

One of the biggest benefits of BNPL is that most providers offer no-interest deals. For those that do charge interest, it’s often a lower rate than traditional methods of borrowing. This means that you’re likely to pay significantly less than when borrowing on a credit card or paying with funds from a loan.

BNPL and other retail finance providers will often accept applicants with lower than average credit scores. For many consumers who have previously been denied credit, BNPL is therefore an attractive alternative.

BNPL can be very convenient for consumers, with many providers conducting a soft credit check at the point of purchase, giving instant approval. A variety of online retailers have partnered with BNPL providers to offer this payment option at checkout. As providers continue to evolve their technology, some now offer an app where users can make purchases in a physical store too, paying nothing at the till and instead adding it to their BNPL balance to be paid off over time.

Implications of BNPL that you should be aware of

Research shows that four in five of BNPL users agree that seeing a BNPL message while browsing gives them the ability to spend more. Since many agreements require no upfront payment, it can facilitate unnecessary spending which could lead to financial difficulties.

BNPL is not currently regulated, so you are not protected by Section 75 of the Consumer Credit Act, which protects all purchases made with credit over £100. You are also unable to raise a claim with the Financial Ombudsman should you experience any problems.

Despite many BNPL agreements being interest free, there are other charges that you could be affected by: BNPL providers need to make a profit, and when they do not make money through charging interest on the borrowed funds, they do so from those who can’t or don’t pay on time. Not only do you run the risk of being charged a late fee, but missing a BNPL payment can also have an impact on your future ability to apply for other forms of credit.

Tips to borrow responsibly with BNPL

BNPL can be an effective method of short-term borrowing when used responsibly. Here are our top three tips to help you spend safely:

1. Borrow within your means: If you would not have made the purchase without the offer of BNPL, consider if it truly is affordable. Avoid taking out multiple BNPL agreements at once, instead, pay off what you owe before borrowing further. By borrowing beyond your means, you risk the repayments becoming unmanageable.

2. Create repayment reminders: Make a note of all repayment dates and be sure to have the appropriate funds in your account for every instalment to eliminate the risk of missing a payment. Bear in mind not all providers will allow you to choose your repayment dates, so they may not coincide with pay day.

3. Check customer reviews: Before committing to an agreement, make an informed decision on the best provider for your needs by reading reviews and seeing what other customers have to say about the provider you have in mind.

Our Smart Money People community have left over 5,000 reviews for the leading BNPL and retail finance providers to give you insight into what you can expect from each of them.

If you’ve had a BNPL or retail finance agreement, consider sharing your experience by leaving a review today. Whether your experience was good or bad, we want to hear from you! Together, we can increase trust and transparency in financial services.