What is buy now pay later?
Buy now pay later schemes do exactly what they say – you get the opportunity to buy something without having to pay for it until a later date. Also known as point of sale credit, some schemes give you 30 days to pay while others allow you to up to 12 months.
What does buy now pay later cost?
In general, if you repay the price of what you bought within the delay period you won’t pay any interest. That’s because these periods are usually interest-free.
If you use buy now pay later carefully you could delay paying for something for several months, or even a year, and not pay a penny in interest. Many of the big firms won’t charge you any interest if you clear your balance before your delay period is up – even if you only pay the day before.
Alternatively, some offers allow you to spread the cost over a longer period but interest may be charged at a high rate, for example 39.9% APR.
Don’t miss a payment
Because of how buy now pay later works it can quickly become expensive if you don’t make your repayments on time.
If you don’t clear your debt before the delayed period is up, some providers will ask for a settlement fee or a lump sum of interest may be added to the debt.
On top of that, you may be charged late payment fees too. Missed payments could also be recorded on your credit report and affect your credit score.
So, make sure you set calendar reminders and alerts to make sure you clear the debt before interest is added.
Does buy now pay later affect credit scores?
If you use buy now pay later sensibly and make your repayments on time, it could improve your score. This is because when you use credit responsibly it shows lenders you are a reliable borrower.
But if you fall behind with your agreed payments, this will be noted on your credit report for at least six years. This could lower your credit score and could affect any future application you make for a loan, credit card or mortgage.
For more on buy now pay later and credit scores, please see our more detailed guide.
Why was I not eligible for buy now pay later?
Because of how buy now pay later works it is a form of credit – you are being lent the price of the item. That means buy now pay later providers may check your credit score before deciding whether to approve your application.
If you have a bad credit score you are likely to be refused buy now pay later credit. Discover more with our guide to why companies refuse credit applications.
It is well worth checking your credit score before you apply for buy now pay later to see if there are any problems you can fix to improve your score.
What are the alternatives to buy now pay later?
Used correctly buy now pay later can be a convenient way to purchase an item without having to part with your cash for a while. But there are other ways you could do this.
For example, you can apply for a credit card with an interest-free deal on purchases and spread the cost of paying for items over several years without paying a penny in interest. The advantage of a credit card over buy now pay later is it can be used in most stores so you can spread the cost of several items rather than just one.