Cash advice

With ‘Buy Now Pay Later’ (BNPL) schemes it’s easier than ever to get what we want when we want, regardless of how much money’s in our bank accounts – but at what cost? Here’s everything you need to know…

1 HOW DOES BUY NOW PAY LATER WORK?

Most of us understand these schemes allow us to delay or spread the cost of a purchase. But, if you miss a payment, the ‘default’ will appear as a black mark on your credit report. ‘Buy now pay later retail credit, online or in store, will usually be registered on your credit report held by one or more credit reference agencies,’ says Experian’s James Jones. Missed payments are visible to lenders on credit reports for six years – so if you’re applying for a credit card or mortgage, you could face issues. Fortyfive per cent of those who used a BNPL scheme in the past year, according to Comparethemarket, had missed at least one payment.

2 MANY SCHEMES TARGET YOUNG

In the past 12 months, as many as 10m people have used a ‘Buy Now, Pay Later’ scheme, according to the Office for National Statistics. But with many aimed at 25- to 34-year-olds, the worry is this age group is sleepwalking into financial problems. Nearly 40 per cent of youngsters who had used these schemes said it had damaged their credit score, according to research.

3 ASSESS RISKS

Research from money. co.uk found around 36 per cent of shoppers are concerned about their finances as BNPL encourages them to take on unsustainable debt. ‘Failure to pay bills can result in damage to your credit score and result in a spiral of outstanding payments which could jeopardise important life milestones like buying a house,’ says John Crossley, head of money at Comparethemarket. ‘There are cheaper and less risky alternatives. Many credit cards offer zero per cent interest on new purchases, often for up to two years.’

4 BNPL CHECKLIST

Consider a zero per cent on new purchases credit card first; don’t use BNPL for impulse buys. Ask yourself whether the product is really worth the risk of falling into debt. Check the total cost of the BNPL scheme and any potential negative consequences. Also check the company will prompt you when the zero per cent interest period is due to expire – as required by law – so you have the chance to repay in full before interest is charged. Review your credit report via Experian, Equifax or TransUnion. If you are using it because your cards are maxed out, ask yourself if you should take on more debt.

5 WHERE TO GET DEBT ADVICE

If you’re struggling to make card repayments and pay off debt, take action now – ignoring the problem will only make matters worse. The Money Advice Service has a wealth of budgeting information and a free phone line, 0800 138 7777. Also, try Stepchange.org or Payplan.com for free debt advice and a fee-free debt management plan.