BUY NOW, PAY LATER what it really means
Spotted the ‘We now accept Klarna’ message when you shop online? Here’s what you should know… Of those who used BNPL in the last year, 45% across all age groups missed at least one payment and 48% incurred additional charges for missed payments.
Klarna is one of many Buy Now Pay Later (BNPL) schemes (others include Clearpay, Paypal Credit and Amazon Pay Monthly), which have gained popularity among consumers looking to spread the cost of their purchases. In fact, more than 10m people have used BNPL, according to figures from the Office for National Statistics. While not having to stump up the full amount for something immediately may sound attractive, there are pitfalls to know about.
HOW IT WORKS
When you use a BNPL scheme, you enter into a credit agreement. How you pay back that credit varies from store to store, but you typically have from 30 days to 12 months to pay off the balance. There’s no interest to pay during this period. BNPL is particularly popular with younger shoppers, with nearly a quarter of those aged 18-24 saying they would use it to pay for goods, according to research from Compare the Market.
MISSING PAYMENTS
Any missed or late payments will damage your credit score and will show up on your credit record for six years. This could lead to you being rejected for credit in the future, or refused anything from a broadband contract to a mortgage. There’s also a penalty to pay for late payments, which means if you’re struggling to pay back what you owe, you could get further and further into debt. BNPL companies may also pass on your details to a debt collection agency.
THE ALTERNATIVES
If you really need credit to buy, there are cheaper and less risky alternatives, such as credit cards that offer 0% interest on new purchases. If you’re using BNPL because you’ve maxed out your credit cards, think carefully about whether you really need to take on more debt. If you are struggling with repayments, seek advice from debt charities such as Stepchange (stepchange.org) or National Debtline (nationaldebtline.org).