If you’ve ever bought something on the internet, you’ve probably come across a ‘buy now, pay later’ (BNPL) deal advertised. Even if you have the money available to complete the transaction, the thought of receiving the item now and worrying about paying for it later is attractive. But is a BNPL deal worthwhile? What do you need to know before signing up for one? Let’s find out now.
What you need to know about Buy Now, Pay Later deals
When you reach an online checkout, you’ve probably noticed a tab that appears on your screen, inviting you to buy now and pay later. Companies like Klarna and Clearpay provide BNPL deals, and it’s a quick and easy way to access credit. Instead of having to pay the full amount for a product up front, you can spread the cost of the purchase over several months. It’s particularly helpful for expensive items like furniture and household appliances.
How does it actually work?
The majority of BNPL companies offer you a variable payment period between one and twelve months. In most instances, you can choose how often you make these repayments, be it weekly or monthly. You might even be able to access an interest-free period at the start of the deal, but it depends on the company that is offering the scheme.
BNPL companies are able to strike deals with the retailers, which sees them take a cut from the profits. This is essentially how they make money, as they broaden the potential market for certain products. If you stay on top of your BNPL payments and don’t incur late fees, it can be a decent option if you don’t want to pay for a purchase all in one go.
What effect does BNPL have on credit rating?
Fundamentally, a BNPL scheme is a credit arrangement. Therefore, if you don’t have a particularly good credit score, your application might be rejected. However, should you be approved, you will need to make your repayments on time, as late or missed payments will negatively impact your overall credit score.
This is because BNPL providers submit details to the UK’s major credit bureaus, who are responsible for updating your credit score. So, if you sign up for a BNPL deal, make sure you take the repayments as seriously as you would for any other type of credit.
Is a BNPL scheme right for you?
There’s no getting away from the fact that BNPL schemes are attractive. After all, it allows people to spread the cost of an expensive item without having to apply for a credit card. However, you need to be mindful that a BNPL deal won’t save you any money. While five monthly payments of £20 sound manageable, the product will still cost you £100! This often leads people to buy products they don’t actually need, just because they appear to be of good value. Therefore, make sure you do actually need the item before signing up for a buy now, pay later scheme.
Are there any alternatives to BNPL?
Lots of people prefer using credit cards than BNPL deals, but it’s down to personal preference. Another good alternative is to apply for a personal loan from a lender like Koyo Loans. Koyo’s loans are competitive and easy to apply for and present an ideal option if you’re looking to spread the cost of a purchase over an extended period of time.
To read more on topics like this, check out the Money category
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