Buy Now, Pay Later (BNPL) services have become increasingly popular over the past few years in the UK, as they offer a range of attractive benefits, enabling shoppers to pay for their items in instalments or later down the line. Let's take a look at how these services work and the pros and cons which come with them.
What is Buy Now, Pay Later?
Buy Now, Pay Later services provide customers with the ability to purchase an item they may not be able to afford upfront, by breaking down the cost of the item into more manageable payments to be made later. This method of payment can also be referred to as ‘deferred payment’ or ‘interest-free credit’.
There are different types of services available, depending on the provider. For example, services may allow a percentage of the cost of the items purchased to be paid upfront, and the remaining balance will be divided over a number of instalments. These instalments may be paid over a fixed period of time, such as 6 months, 12 months or even longer periods. Alternatively, these services may require the full cost of the item to be paid upfront, but offer the customers the option to spread the cost as they are liable to pay it back over an agreed period. Customers are often given the option to pay these costs at any time, however, any payment made early may incur certain fees.
Popular Buy Now, Pay Later Services in the UK
The most popular BNPL services currently available in the UK are Klarna, Clearpay, Paypal Credit, and Zilch. All of these services enable customers to purchase items in a more accessible manner and then pay for them later.
Klarna is a Swedish company, and the biggest of the BNPL services available in the UK. It offers customers the chance to pay over a three instalment period, with the cost of the product spread evenly over the three months. The service also offers customers the option to buy items and pay for them later, up to 30 days after purchase.
Clearpay is a UK based BNPL service, offering customers the chance to pay for their purchases in four equal instalments, due every two weeks. This service also allows customers to pay back the full cost of the item early, with no additional fees.
Paypal Credit is a buy now, pay later service owned by Paypal. It enables customers to pay back the full cost of their purchase in full within 12 months at 0% interest, or up to 24 months at competitive rates. This service also offers customers the option to pay for their items over a fixed period of 6 months, with no additional cost.
Lastly, Zilch is a BNPL service owned by Zopa. It allows customers to buy items of up to £800, with 4 equal payments. This service also offers customers the option to pay back the full cost of the item prior to the due date, without incurring any fees.
Benefits of Buy Now, Pay Later
BNPL services offer a range of benefits to customers, making them a more attractive prospect than traditional methods of payment. Firstly, BNPL services allow customers to spread the cost of their purchases over a number of instalments, making them more accessible. Customers are also given a lot of flexibility when it comes to repayment, as they can choose how they want to pay and when they want to pay.
Customers may also benefit from the additional protective features available with BNPL services, such as purchase protection options and automated payment reminders. These features can make purchasing items safer and easier, helping to avoid any additional late fees or unforeseen charges.
Another benefit of BNPL services is that many of them offer customers a 0% interest rate, allowing customers to purchase items without having to worry about having to pay any additional costs. This can be a great way to purchase new items without having to worry about any extra fees added onto the cost.
Lastly, BNPL Services also offer customers the ability to track their payments and purchases through an online dashboard. This makes it much easier to keep track of what has been paid for and how much is still to be paid, making it an ideal option for customers who struggle to manage their finances.
Risks of Buy Now, Pay Later Services
Whilst BNPL services are very convenient and often offer interesting benefits for customers, there are a number of risks which should be considered before taking out such a service.
For starters, whilst some of the services offer customers 0% interest on their purchases, other services may offer customers longer repayment periods with higher interest rates - meaning that customers may find themselves paying back much more than their original purchase price. It is important that customers are aware of any hidden charges and interest rates associated with these services, to ensure that they are making an informed decision.
Another risk of using BNPL services is the potential to fall into a spiral of debt. For customers who find themselves unable to make their payments on time, they may find themselves in a situation where they are having to pay additional interest on the purchase, which could leave them in a difficult financial situation. It is therefore important that customers are aware of the terms and conditions of the BNPL service they are using and make sure they can afford the payments.
Finally, it is important to be aware that BNPL services are not regulated by the Financial Conduct Authority (FCA), so customers may find that they have no legal rights if something goes wrong with their service.
Overall, Buy Now, Pay Later services offer customers a range of benefits, making them an attractive option for those looking to purchase items without worrying about being able to pay for them upfront. However, it is important to be aware of the risks associated with using these services, such as potential fees and interest rates, and to make sure that customers are fully aware of the terms and conditions of the service they are using. By being aware of these risks, customers can make sure that they use BNPL services responsibly and ensure that they are making the most out of their purchase.