The pros and cons of buy now, pay later

Buy now, pay later schemes are becoming increasingly popular, with 17% of UK adults using them between May 2021 and May 2022. Here’s what you need to know about BNPL.

Written by

Alex Hasty

Insurance and finance expert

Last Updated

11 SEPTEMBER 2023

7 min read

What is buy now, pay later?

Buy now, pay later (BNPL) schemes allow you to spread the cost of a purchase. This could be especially helpful when you’re buying big-ticket items, like a laptop or sofa, as it means you can break down the cost into more manageable chunks.

Sometimes known as deferred payment credit (DPC), buy now, pay later is a type of borrowing. The schemes typically offer interest-free options, provided you stick to the payment terms. They’re not provided by the retailer, you’re buying from, but by separate providers.

How does buy now, pay later work?

Essentially what happens is that when you come to pay at the till or online checkout, the BNPL provider pays the money for you. Then you pay the BNPL provider back.

Different schemes offer different terms, so – as always – it pays to read the small print.

Typically schemes fall into two types:

Pay later – typically you can delay making the payment to the BNPL provider for between 14 and 30 days.
Instalments – companies will split the cost into smaller slices that can be repaid over several months.

But you may also find yourself having to pay a fee or interest when paying by instalments, particularly if you opt for a longer period to pay back the money. These can be quite high, with representative interest rates of up to 29%, and even higher if you have a poor credit record.

How can buy now, pay later impact your credit score?

If you always make your payments on time, BNPL shouldn’t impact your credit score. But if you miss a payment, this information could be passed on to credit reference agencies, and your score could be affected. This could make getting credit harder in future.

When you apply for buy now, pay later, the provider will carry out a credit check on you. But all of them will carry out a hard credit check – that’s to say, a detailed look at your credit report that will be visible to other credit providers.

Who offers buy now, pay later?

When buy now, pay later schemes started operating in the UK, they were mainly set up by specialists concentrating on this type of flexible credit offering, for example Klarna, Laybuy , Clearpay and PayPal Credit.

But banks including Monzo, NatWest and Virgin Money Slyce are also beginning to offer BNPL options in their apps.

Here’s how some of the main operators work:

Klarna

Klarna partners with over 25,000 retailers in the UK.

It offers two options, which are usually presented when you come to pay:

You split the cost of your purchase into three interest-free payments. You make the first payment when you buy the item, with the next two taken automatically every 30 days after that.
Alternatively, you can opt to pay up to 30 days later.

There are no fees and no interest if you pay on time.

Also available is the Klarna Card. With this, you can shop everywhere Visa is accepted and pay right away or pay in instalments for a fee of £2.99 a month. You can choose between a virtual or a plastic card.

PayPal Credit

PayPal Credit describes itself as ‘a credit card without the plastic’. There are three options to choose from depending on how much you spend and where:

0% interest for four months on purchases over £99 – every time you spend £99 or more.
For transactions under £99, you can spread the cost of your purchases, but you'll have to pay interest.
Monthly instalment plans available at selected online stores from six to 24 months. Make sure you know how much interest you'll pay too.

You can apply online at the PayPal Credit website. You'll need a PayPal account, but you can sort that out when you apply if you haven't already got one.

Laybuy

Laybuy lets you spread the cost of purchases over six weekly automatic payments. It's interest-free if you pay on time, but you will pay fees if you miss a payment or pay late.

Laybuy does a soft credit check when you apply. It will use this credit check and other assessments to determine your spending limit. It reviews the limits every two to three months and may increase the limit depending on how often you use the service and if you’ve paid on time.

ClearPay

ClearPay lets you pay in four interest-free instalments over six weeks. It works with some high street brands, as well as more specialist shops too – from fishing shops to baby clothes.

You'll need to get the app to sign up. You can add it to your Apple Wallet or Google Wallet. ClearPay also offers rewards for paying on time in its Pulse scheme.

Monzo

You can use Monzo Flex online or in-store. And you can move purchases from your Monzo Current Account to Flex, up to two weeks after you’ve paid.

If eligible, it’s interest free over three monthly payments. If you want to take longer to pay, you can opt for six and 12 monthly payments but check out your personalised interest rate before you decide.

If you miss a payment, you've got seven days to catch up without having to pay interest. If you still haven't caught up, you'll have to pay interest. Monzo Flex offers protection for eligible purchases.

NatWest

Run via the NatWest mobile app, you can split the cost of a purchase between £50 and £1,000 into four, and pay 0% interest over four months.

You can pay with your virtual card anywhere Mastercard is accepted - in-store or online. It works with Apple Pay or Google Pay too.

If you use your virtual card for more than one purchase, NatWest will combine them into one monthly direct debit payment. But you'll pay a fee if you’re over a day late with your payment.

Virgin Money Slyce

Virgin Money Slyce’s maximum credit is £3,000, which is higher than some alternative options. But if you opt to use that much, make sure you can afford to pay it back on time.

You can pay in instalments over three, six, nine, or 12 months. If you pay in three or six months there's no fee. A monthly spend of £30 or more can be put into an instalment plan. Any monthly amount under £30 needs to be paid in full.

For longer plans of nine and twelve months, an instalment fee is added. This is a percentage of the total amount you put into the plan.

What are the pros and cons of buy now, pay later?

As with any form of finance, buy now, pay later comes with a whole host of pros and cons. Here are some of them:

Pros:

You don’t have to wait until payday if you need to make an essential purchase.
If you're buying online, you only need pay for what you keep. So, if you frequently return things, you don't have to pay for them and await the refund – as long as you return items promptly.
When money is tight, BNPL can be a great way to spread the cost of major purchases.
Payment patterns may be helpful for people paid weekly or fortnightly.
Unlike credit cards and loans, buy now, pay later schemes can be interest-free for specific payment periods.
Lots of companies are now offering buy now, pay later. That means you can shop around for terms that suit you.
It’s easy to manage your account on an app.

Cons:

It’s way more tempting to buy things you can’t afford.
If you use several BNPL providers, it can be hard to keep track overall of what you owe and what needs to be paid when.
If you miss a payment, the fees and interest payments can be extremely high.
A missed payment could affect your credit score.
Not everyone is accepted for finance – if your credit rating is bad, you may find you’re turned down.
There may be other, better finance options available to you, such as an interest-free credit card.
You currently can't complain to the Financial Ombudsman if things go wrong. But this should become possible once the sector is regulated.

What happens if I can't make the repayments?

Missing payments is definitely a bad idea, as there are likely to be consequences. These could include:

Being charged for a late payment.
Being barred from using BNPL in the future.
Your credit rating being affected. This could make it hard to get a loan, mortgage or credit card in future.

If you think you might miss a repayment, contact your BNPL provider as soon as possible. Some will allow you to delay or freeze repayments. Alternatively, some may switch you to a longer plan with lower regular payments, but that charge interest.

Frequently asked questions

Is buy now pay later regulated?

No, interest-free agreements repayable in under 12 months and in 12 or fewer instalments aren't currently regulated. The government has put forward proposals for regulation, but a date for legislation being passed hadn’t been set at the time of writing.

Are my purchases protected with BNPL like they are with credit cards?

At the moment, no. Items between £100 and £30,000 bought with a credit card can be protected under Section 75 of the Consumer Credit Act. This doesn't apply to BNPL providers, but may change when BNPL becomes regulated.

Some providers offer their own protection schemes against fraud, or buyer protection for goods that aren't received or aren't as described.

How do buy now, pay later schemes make money?

BNPL companies make their money from the retailer, rather than the customer. By offering BNPL, the retailer may find customers spending more or not putting off buying until after payday, making the business more profitable.

BNPL providers also make money from fees for late payments or interest charges for people not using the interest-free options.

Will I be accepted for buy now pay later with bad credit?

It’s possible, although if you have too many black marks on your credit record, you may be turned down.

Once BNPL is regulated, providers will have to carry out similar affordability checks to other credit providers, so it may become trickier to be accepted for them if you have bad credit.

Buy now, pay later vs credit cards

Which is better will depend on you and your circumstances. Here are some factors to bear in mind:

Buy now, pay later may allow you to make weekly payments.
Buy now, pay later often calls for an upfront payment, whereas credit cards allow you to defer the whole cost.
Buy now, pay later credit checks may not be as stringent as those for credit cards.
With credit cards, you may incur other costs, such as annual fees.
Credit cards are still accepted at more retailers. Not all shops will offer buy now, pay later from your chosen provider.
Credit cards may offer more protection if things go wrong.
Credit cards may offer rewards, like air miles or cashback. You won’t typically get these with buy now, pay later.

How can I shop safely with buy now, pay later?

Like with any borrowing, you need to understand how BNPL works and how it fits into your finances.

Set up alerts for your repayments – this will be especially helpful if you've got different repayments from different providers.
Know how repayments fit into your budget – update your budget regularly to include your repayments.
Don't borrow more than you can afford to pay back – and consider carefully whether you'll be able to continue making your payments if you borrow more either on BNPL or other credit.
Return unwanted items promptly – you don't want to be paying for something you’re planning to send back.

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