Buy-now-Pay-Later Options, is there a place for this?

Over the last couple of years, there’s been an increase in offers to buy-now and pay-later at the point-of-sale (i.e., when you are about to pay for a purchase, especially for large purchases, you get offered the option not to pay in full).  Popular are Klarna and PayPal’s Pay in 3 (which involves one payment at point of sale and then in two further instalments) at no cost i.e., interest free.

Is this a new thing, definitely not!  For those of you who are old enough to remember there was a time when we had the catalogues (Littlewoods, John Moores, Great Universal, etc) and you would order things and were allowed to pay in instalments over a fixed period, with the first month being at no cost (a bit like a credit card).

So, it’s nothing new, the pay later option is being offered in the same manner as before, the difference being it happens when you go to the shop or try to order online, rather than when you browse through a catalogue and make your purchasing decision.

The other main difference is that if you agree to take the offer, only a soft search of your credit history is performed and as a result, it doesn’t show up on your credit file, compared to other financing options in which a full search is done, and the record appears for other creditors to see.

There are other similar buy-now-pay-later providers and most of them are unregulated.  Monzo and Barclays bank however offer similar, but regulated options.

If you’ve been following my post for a while, you’ll know that I am an advocate for living within your means and only buying what you can afford (if possible, twice over as some advocates suggest and makes sense to me).  However, if you have decided to make a purchase, have the funds to pay for it and then get offered the option to spread payment for your purchase, then why not?  A little bit more interest (pennies though) on the remaining funds and a way to help improve your credit (as the sector slowly gets regulated)! So yes, take advantage of it, but you MUST be disciplined enough to retain the rest of the money for its purpose (to pay for your purchase as the instalments fall due).  On the other hand, if you are saving towards a purchase and the two months payment period will give you the opportunity to buy it now and pay the balance within the two month period in which you would have completed saving for it, then sure go for it!

I believe part of being financially savvy is spotting and taking advantage of opportunities, so of course go ahead and utilise these options.  In all situations though, the objective should be paying it off within the interest-free three-month period.  It is however useful to check what the interest rate would be if you don’t pay within the term!  Having this information to hand will hopefully act as a deterrent to defaulting.

In an article on the Money saving expert’s website, it is reported that there are plans to regulate the sector and that Experian will now include buy-now-pay-later information on credit files.  This therefore means the use of this financing option and any default, will appear on one’s credit records and we all know how keeping to payment terms and defaulting affects our credit and how that inadvertently could affect us, so be cautious in taking up these offers.

My message remains only buy what you can afford (in this case, to pay for within the agreed term) and always pay down/off debt.

Is there a place for this type of financing option?  Definitely! Be sure to only use it if you’re 100% sure you can meet the commitment to pay as they fall due!

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