What is buy now, pay later?

Buy now, pay later (BNPL) is a popular method for purchasing products online. It can help you spread the price of costly items across a few weeks or months – making smaller monthly repayments rather than paying the full price in one go.

However, it is a form of credit so it’s important to know all the details before you agree to anything.

How does buy now, pay later work?

The buy now, pay later model can help you spread the cost of an item over a few weeks or even a few months.

It usually follows a three-step process:

  1. You purchase a product online or in store – buy now, pay later is also available in some physical stores.
  2. You borrow money from a chosen lender to purchase the product.
  3. You pay the lender back the original money borrowed (plus any interest and fees) over an agreed period of time.

By splitting up the total amount due, you can spread out the cost of an item over a few weeks, months, or even a year. You can often pay back the total price in monthly instalments, paying a portion of the overall cost each time. 

Some buy now, pay later arrangements don’t include any interest for the first 12 months. So, if your agreement is for less than a year, or you pay back your loan in that time, you can avoid any extra interest costs. However, you may have to pay interest charges and fees after that. 

Make sure you read the terms of your agreement before purchasing your item to find out how much you’ll owe. You can set up a Direct Debit to pay your instalment on the same day each month. That way, you know exactly how much is going to leave your bank account, and when.

When is buy now, pay later a good idea?

This form of borrowing can be a good way to spread the cost of items. However, it’s only a good idea if you were going to get the item anyway and you can afford it in future. 

For example, buy now, pay later might help spread the cost of a new TV over the course of a few months. Or it could be a good way to buy essential purchases now, knowing that you’ll be able to pay back the loan in a few weeks’ time – such as a birthday present that’s needed just before payday.

You should only borrow money if you can be certain that you can make the monthly repayments. It might not be a good idea if:

  • You have unstable income.
  • You’re facing long-term unemployment.
  • You have a lot of other outgoing costs, like bills or other borrowing.

If you miss any payments, you could face extra charges and it could affect your credit score. Adverse effects to your credit score could impact what you can borrow in the future.

You may also want to think about other options before making a buy now, pay later purchase, such as:

  • Alternative borrowing – are there other ways to borrow this money, like a credit card?
  • Savings – do you have any savings you could use instead? Read more on making the most of your savings plan.
  • Is this an impulse buy? – only purchase the item if it’s essential.

Can buy now, pay later affect your credit score?

When you agree to a buy, now pay later purchase, you are borrowing money from a lender. As with other forms of credit, if you fail to make payments, you could face charges, or it could impact your credit score. 

Currently, BNPL isn’t regulated, which means it hasn’t been mandatory for lenders to report BNPL to the credit reference agencies. But this has started to shift with the government’s announcement that regulation of BNPL is being introduced, and more accounts are showing up on credit reports.  

So, it’s best to stick to your monthly repayments and keep track of how much credit you’re using. 

Check Your Credit Score for free with Lloyds Bank.

It’s also good practice to read the terms and conditions of your agreement before accepting and check whether the lender performs a full credit check as part of your application.

A full or hard credit check on your credit file is a report requested by a lender to help them decide whether you’d be suitable to lend money to. A lender will look at a range of criteria to decide how likely you are to pay your money back. 

Having too many full credit searches over a short time could lower your credit score, making it harder to borrow money in the future.

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Important legal information

Lloyds Bank plc. Registered office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales No. 2065. Lloyds Bank plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number 119278.