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 score?
Buy now pay later is a form of credit so how you use it can have an impact on your credit score. You are effectively borrowing the price of the item for the length of the delay period.
If you use buy now pay later sensibly and make your repayments on time it shouldn’t have a negative effect on your credit score. In fact, it could improve it. That’s because when you use credit sensibly it shows lenders that you are a reliable borrower.
If you miss a payment or fail to pay back what you owe when the time comes, it can be noted on your credit report. That mark could then stay on your credit record for six years, lowering your credit score. You can find out more in our guide to what affects your credit score.
This means that when you apply for a loan, credit card or mortgage in the future how you used buy now pay later could affect whether your application is approved.
Applying for lots of buy now pay later deals could also be bad news for your credit score. If the company does a hard search of your credit report when you apply for buy now pay later it will show on your credit report to other lenders. Lots of these searches worry lenders when they check your credit report as it looks like you are desperate for credit.
Some buy now pay later firms don’t do a hard search though. Instead they opt for a soft search, which won’t impact your credit score.
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.