Buy-Now-Pay-Later? What is it and should I avoid it?

Student sat on desktop computer

You may not be familiar with the term Buy-now-pay-later (BNPL), but you may have seen lenders you have done any online shopping in the lead up to Christmas. BNPL Lenders such as Klarna (the UK’s largest provider), Clearpay and LayBuy are names you may see when you get to the checkout on your favourite websites such as ASOS, Pretty Little Thing and JD Sports.

BNPL firms allow people to split the cost of their shopping into “more manageable” chunks over time or by “postponing” their bill interest-free.

Currently, more than 17 million UK customers have used BNPL companies to make online purchases, company data has shown.

Citizens Advice have released figures that 1 in 10 Buy Now Pay Later shoppers have been chased by debt collectors. Rising to 1 in 8 for young people.

The risk with how BNPL companies operate is the fact that it is not primarily based on credit. If you were to get a credit card or a loan, for example, the companies would run a credit check on yourself to ensure that your credit score is high enough to allow for the repayments. With most credit cards, if you don’t meet your payments you will get charged interest. 

However, BNPLs do not run credit checks or charge interest. They assume customers will be able to meet the repayments be it weekly or monthly. The issues arise when payments are not made, fees for missed payments will then be charged. If any payments are missed BNPLs will often refer the customer to debt collection agencies instead to recoup the costs. (Please note, terms and conditions vary between companies).

As it currently stands, BNPL lenders are currently unregulated and there are calls from certain MPs to ask retailers to stop using BNPLs on their websites until it is properly regulated. However, regulation is in the pipeline.

Around the festive period, it is very easy to get absorbed in all the commercialism and need and want to gift people. However, within the Financial Guidance Team, we advise students to use the Money Saving Expert Mantra to ask themselves the following questions prior to purchasing.

·         Do I need it?

·         Can I afford it?

·         Will I use it?

So, prior to making any purchases, take a moment, pause and think of the mantra. If you can’t afford something today. Why don’t you save up and buy it tomorrow? 

If you are planning on making any purchases in the lead up to Christmas, ensure that you make the most of all the money-saving opportunities as a student through the numerous Student Discount providers. Such as UniDays, Student Beans and Totum.