Buy Now Pay Later - Is it worth it? You decide.
With more and more people choosing Buy Now Pay Later (BNPL) options to purchase items online, it’s more important than ever to understand how they work.
What is Buy Now Pay Later?
Quite simply, BNPL does what the name suggests: it offers you the opportunity to buy and receive an item now by agreeing to pay for it at a later date.
The paying later bit is usually spread over a short period of time, such as 30 days. There are also options to spread out the payments over the course of a few months.
What are the risks?
If you don’t pay it off within the time agreed, which should be clear at the time of purchase, then substantial late fees are often imposed, increasing the debt further.
Failing to pay the money off in the agreed time can affect your credit rating, meaning you may struggle to borrow money in the future.
BNPL is not a regulated field and there can at times be potentially unfair and unclear terms from the lender.
How is the FCA keeping a handle on things?
The Financial Conduct Authority (FCA) is making sure all firms comply with consumer protection legislation. At the moment they do not have the power to regulate the BNPL firms but the government is hoping this will change in the future.
The four firms involved in recent changes and who have all cooperated fully are: Clearpay, Klarna, Laybuy and Openpay.
The FCA is making terms on issues like contract cancellations fairer and easier to understand.
In specific circumstances, they are reviewing terms that involve late payment fees.
The following types of terms were reviewed:
What happens if you (the consumer) cancel your order – previously consumers were expected to continue to pay instalments until the BNPL had a confirmation of the cancellation – the agreement will now either be cancelled or paused to avoid late payments being implemented.
Can firms terminate or suspend your account? – concerns were that the BNPL lenders could stop or pause a customer’s account without notice – wording has now been changed to clarify this.
How payment is taken using your card details – firms have now made it clear how this works and how a consumer can cancel these payments
Find the full details here
What does this mean for you?
If you find that using a BNPL firm is right for you, these changes give you a little more security in knowing that you are unlikely to rack up debt if you pay the amount in the specified time. It also means that you will get your money back if you change your mind and cancel the order.
You should always be careful and intentional when borrowing money, including Buy Now, Pay Later offers. Remember to ask yourself if you would purchase the item if BNPL wasn’t an option, when you will pay the debt off, how you will acquire the money, and whether it will impact other areas of your budget.
More people are finding themselves struggling with debt, including budgeting and repayment issues. If you have debt problems that you find difficult to solve on your own, you can find support before hitting crisis point.
You can find helpful information in our Money Help Hub, which includes tips and signposting to non-profit services such as Citizen’s Advice.