If you are on a budget or you need to buy something that you can’t quite stretch to afford, the ‘buy now pay later’ scheme might be the answer.
What is buy now pay later?
It’s exactly what it says on the tin – you get the chance to buy something without having to pay for it until a later date. Some sellers give you 30 days while others give you up to 12 months. This scheme is also called ‘point of sale credit’.
What does it cost?
Most of the time, if you repay the price within the delay period, you won’t have to pay any interest as this period is ‘interest-free’.
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.
Warning! Don’t miss a payment
Due to the nature of how buy now pay later works, it can become quite expensive if you don’t make your repayment on time.
If you don’t clear your debt before the agreed delayed period, you could end up with a lump sum interest to the debt. What’s more, you could be charged late payment fees.
With missed payments, could affect your credit score as well therefore ensure that you make your payments on time.
You can do this by setting calendar reminders and alerts to ensure that you clear the debt before its due date to avoid any interest being charged.
Will buy now pay later affect my credit score?
As it’s a form of credit, it can affect your credit score. Technically you are borrowing the price of the item for the agreed delayed period.
If you use the scheme sensibly and make your repayments on time, you shouldn’t have a negative effect on your credit score. In fact, it might improve your credit score because lenders will see that you are a reliable borrower.
If you miss or fall behind on your payments, it will be noted on your credit score and will lower your credit score.
Why was I not eligible for the buy now pay later scheme?
As the scheme is a form of credit, the ‘buy now pay later’ providers need to check your credit score before approving your application.
If you have a bad credit score, you are likely to be refused buy now pay later credit.
Are there any alternatives to buy now pay later?
If used correctly, buy now pay later is the most convenient way to buy something without having to part with your cash.
However, there are alternatives such as applying for a credit card with an interest-free deal on purchases and spreading the cost of paying for items over several years without paying a penny in interest.
Author: Mukesh Malhotra, Chair of Thamesbank Credit Union