What is buy now, pay later and where can it be used?

What is buy now, pay later?

BNPL is a form of unregulated credit. It’s a payment method that shoppers can use to buy a product or service and split the cost of the purchase up into smaller amounts, paid back over time. The amount of time someone has to pay back a BNPL loan may vary depending on the provider. Typically, this is without interest or set-up fees although late fees may apply. While most BNPL transactions are online, it may be possible to use it in some physical stores.

How does buy now, pay later work?

To use BNPL, a shopper would choose it as their payment method during checkout. They would then be taken through an application process, although this may vary depending on the provider. Information needed for a BNPL application may include things such as the applicant’s title, phone number, address, date of birth, and payment details. Credit checks may be carried out as part of the application process. Not everyone is approved based on what checks the BNPL provider conducts.

BNPL providers may run ‘soft’ search credit checks when someone applies to use a product. This leaves a mark on the applicant’s credit file that can be viewed by the applicant, but not lenders.

If approved to use BNPL for a transaction at a participating retailer, a shopper would make the first payment and pay off the rest of the purchase in instalments over a fixed period.

The length of time someone has to pay off a loan may vary depending on the provider. For example, with PayPal Pay in 3¹, individuals can spread out purchases over three payments. The first payment is made at the time of purchase, the rest in two payments due on the same date of the following two months after that.

Payments are usually automatically withdrawn from a customer’s connected payment method, such as a bank account or payment card. Sufficient funds must be available at the time for a payment to be successful.

Where can buy now, pay later be used?

Different types of retailers offer BNPL. Consider the below examples:

Online retailers

Some online retailers offer BNPL as a payment option. A customer could select this method during the checkout process and if approved, make the first payment and pay the rest over time. Fees and other associated costs may apply, so it’s important for shoppers to consider all factors before making a considered decision to apply.

Large department stores

Large department stores can also offer BNPL at checkout.

Using BNPL can potentially make shopping online flexible. Using a buy now, pay later payment plan to pay for larger expenses could help manage cash flow.

Other ways to use BNPL

Buy now, pay later can be used to pay for tangible products. This could include a kitchen appliance that needs replacing or a pair of running shoes. BNPL can also be used for services such as flights, holiday rentals, and event tickets.

It’s important for individuals to read and understand the full terms and conditions of any payment plan, consider how repayments will be made, and be sure a purchase fits comfortably in their budget.

Potential benefits of buy now, pay later

Buy now, pay later could help someone to stay in control of their budget. Other potential benefits of BNPL include:

• Flexibility: Sometimes BNPL providers offer different payment plan options – such as making payments over weeks or longer periods of time – so individuals can look to choose one that meets their individual needs.
• Quick decisions: Some BNPL providers may approve loans in a few minutes.
• Automated payments: Some BNPL providers can automatically withdraw payments from an individual’s payment method such as a bank account or debit card. This could give someone peace of mind, knowing payments will be paid on time.

Potential risks of buy now, pay later

Buy now, pay later payment plans may come with late penalties, and other associated costs. These will vary depending on the provider. Other potential risks of BNPL include:

• Impact on other borrowing: Carefully consider if a purchase is affordable and how repayments will be made. Missing payments could possibly make other borrowing difficult or more expensive. Some lenders may report missed payments that could end up on an individual’s credit report.
• Late fees: Some BNPL providers may charge late fees for missed payments.
• Overspending: Buy now, pay later may make it possible for a shopper to spend beyond their means. Shoppers should ensure they can afford a purchase before choosing to apply for a BNPL loan.
• Participating retailers: buy now, pay later as a payment option will not be available for all types of purchases and at all retailers.

Learn about PayPal Pay in 3 here.