Buy Now, Pay Later – but at what cost?
November 20, 2024
Christmas is around the corner and the temptation to spend is hard to resist. Our research into spending last Christmas showed that a third of consumers expected to borrow money to pay for it. Buy Now, Pay Later (BNPL) seems like a convenient way of spreading the cost of purchases over months or even years, but you should remember that it is actually a form of credit that has to be paid back.
Traditionally, you might have paid for your new television or living room couch in instalments. Now BNPL is on tap for smaller everyday items. Easy credit like this seems like a quick fix but it doesn’t take long before the bills start mounting. It is vital you understand the full cost of BNPL and what exactly you are signing up for, so that you don’t rack up unwanted debt.
BNPL is a loan
Although some providers offer ‘interest-free’ instalments, BNPL is in fact a loan. It is easy to mistake it for a payment method rather than a form of credit. By lowering the upfront cost on those clothes or electronics you crave, BNPL appeals to the natural urge to buy. However, it comes with strings attached.
BNPL providers offer different payment options. This is usually a series of instalments, or payment in full later. You typically have to pay the first amount when buying the product or service. The balance is borrowed from the BNPL lender in the form of short-term credit. Buying in this manner is no different to a loan.
Hidden costs
While many BNPL providers give you an interest free period, some do not. There can be interest on longer BNPL arrangements in particular. BNPL lenders often use a higher interest rate than those offered by banks or other financial providers. Use our loan comparison tools to compare with other options for borrowing.
With BNPL you may have to pay additional fees and charges if you are late or miss a payment. Late fees vary between providers. Make sure you keep a record of the amount you have spent and when your payments are due. The last thing you want are charges added to your BNPL agreement, especially if you have a number of them on the go. Before you realise it, charges can stack up.
Consider your needs
You should weigh up whether BNPL is a suitable option for what you’re buying. It is always best to use your personal savings and avoid getting into debt. If you do need to borrow, our Money Tools can help you compare the types of credit available and decide your best option.
Top Tip
Always read the terms and conditions before you enter any BNPL agreement. If you miss payments on any loan over €500, it can affect your credit history. This could impact your chances of getting a loan or mortgage in the future.
Who regulates BNPL?
The Central Bank oversees BNPL. Any BNPL agreement you enter for more than €500 will be recorded on your credit history. The Central Bank provides further information on BNPL.
Make informed decisions this Christmas and remember to assess your financial situation before opting for BNPL.
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