Online retailers are offering ‘buy now, pay later’ options to shoppers. What’s involved and what are the pros and cons?
Buy now, pay later explained
Buy now, pay later is a way of paying for items you buy online after you’ve received them. Typically, you’re given between 14 days and six weeks from the date you ordered the items to pay. If you pay in full in that time, you won’t be charged anything extra.
You may also be offered the option of spreading your payments over several weeks without paying extra in interest or charges.
When you might be charged interest
Klarna offers an option where you can pay for your purchases over between six months and three years by opening a Klarna account. Not all online shops signed up with Klarna offer this option. However, if you spread your payments over six months or more, you could end up paying interest at 18.9%. This is very similar to the interest rate charged by credit cards.
Who offers buy now, pay later?
There are several different companies offering buy now, pay later at the checkout. They include:
- Klarna: offers three different ways of paying, two of which are interest and charge free. You can pay for your item in full within 14 or 30 days (depending on the store), or split the payment across three instalments. Both these options are interest and fee free (as long as you make the payments on time). If you want to pay over several months, you’ll be charged interest.
- Clearpay: lets you pay for items in four interest-free payments over six weeks. The first payment, of 25% of the purchase price, is taken when you place the order. There are then three equal payments for the remainder. You can pay it off early if you want to.
Pros and cons of buy now, pay later
Buy now, pay later can be a convenient way of paying, especially if you want to try several sizes, but don’t want to pay the full cost upfront. But it does encourage people to spend more when they shop online. It’s something the buy now, pay later firms emphasise to retailers. They say that people spend between 20 and 30% more using buy now, pay later, on average.
- You don’t have to pay for things you’ve ordered until after they’ve arrived. It should give you time to decide which (if any) to keep.
- You can spread your payments over up to eight weeks without being charged extra interest or fees. Not all retailers offer this option, and you may have as little as 14 days to pay for your purchases in full.
- It makes it easy to buy more than you were planning to. It’s something that the pay later providers talk about in the section of their websites aimed at retailers.
- You may be charged late payment fees. If you don’t make the payments when you were supposed to, you may be charged late payment fees.
- If you miss payments, it could damage your credit rating and your debt could be sold to a debt collection firm.
- Your purchases aren’t protected by Section 75 of the Consumer Credit Act. If you paid with a credit card, you’d be protected for purchases of £100 or over. The £100 threshold applies to individual items, not your shopping basket in full. Klarna does have a buyer’s protection scheme, which means you shouldn’t pay in the event that your order doesn’t arrive or the items are faulty or not as described.
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