Many companies team up with retailers to offer Buy Now Pay Later schemes. The big names dominating this market are Klarna, ClearPay, LayBuy and Payl8r, and they all have their own set of qualifying criteria and terms and conditions.

You’ll mostly see Buy Now Pay Later schemes associated with fashion retailers, although retailers of other industries naturally offer the scheme too. In fact, there’s been a considerable rise in these schemes since the COVID-19 pandemic, as a result of increased online shopping.

However, it is perhaps the prolificity of Buy Now Pay Later as a payment option within the fashion industry which exacerbates the risks of borrowing credit in this way, which we’ll touch more on later.

When exactly ‘pay later’ is will depend on which company the retailer is partnered with and the terms of their scheme. But usually, you have a few options:

• Pay back in instalments – you can split the total cost into a few separate repayments. In most cases, you’ll have to make the first instalment – or at least a small contribution – upfront, and then you’ll need to give the company permission to take subsequent payments from your account on certain dates going forward.
• Pay later – you can choose to delay the payment in full for a short time, typically about two weeks to one month. You won’t have to give payment details when you make the purchase, and you’ll usually get a reminder when it’s due.
• Pay on finance – you’ll take out a formal payment plan with your purchase, meaning you’ll pay back interest over time at a pre-agreed time.

If you pay back via instalments, then usually you’ll need to undergo a soft credit check. Although missed payments aren’t always recorded on your credit file, you should act as if they will be. With most forms of credit, you’ll rack up debt if you miss payments so it’s not worth your hassle.

Alternatively, if you’ve opted to pay later, should you miss your deadline then your credit score will be negatively impacted, with your debt being potentially passed on to a collection agency.  

Or, if you decide to pay on finance, you’ll need to undergo a hard credit check. It’s a formal plan, so you’ll either be approved or declined. It’s also technically a loan, so if you miss payments then your score will be negatively impacted and you may incur additional fees.

As with any form of credit, Buy Now Pay Later does come with risks. Should you miss payments or have to defer, then you’ll quickly build up debt that can be increasingly difficult to get out of, especially if you’ve made several payments this way. Certainly, not everyone using the scheme is oblivious to the risks, but there is widespread criticism that the loan companies don’t have the interest of customers at heart due to a lack of proper explanation of what the scheme means.

Take the fashion industry as an example: a huge part of their market is young adults. Buy Now Pay Later can be tempting if funds are tight, but there’s a growing concern that it’s getting young people in particular into the habit of using short-term credit facilities as a solution, without awareness of the repercussions or long-term impact. Plus, those who already have difficulty managing spending and debt are more easily influenced.

Instead of opting for Buy Now Pay later, you could get a credit card instead. There are many credit card providers that offer 0% APR for an initial period and you’ll be consistently building up your credit score. Plus, you’re not bound to a specific item or retailer: you can use it for any purchase.

On the other hand, you could look to take out a loan or overdraft, which may offer better rates and mean you won’t have multiple Buy Now Pay Later payments to juggle. The market for loans is super competitive, so run a loan comparison with us to see what cheap loans are available. 

Importantly, you should always carefully consider whether taking out any form of credit is the right move for you. If you can, always use savings and adjust your spending habits first. If you do need to borrow, then see whether friends or family could help you out.