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What is buy now pay later debt?

Buy now pay later (BNPL) debt is an increasingly popular form of credit, as it allows people to purchase goods and services immediately but pay for them at a later date or by spreading the cost across several instalments.

 

There are now numerous providers offering this kind of service, including Klarna, Paypal, Clearpay, Amazon and Laybuy, all of which allow you to make purchases online without having to pay straight away for what you’re buying.

 

Shops and catalogues also offer this kind of service (and, in fact, have been doing so for quite some time, well before the advent of the internet and online shopping).

Key facts about BNPL debt

  • You can spread the cost of goods and services over several instalments or pay for them at a later date
  • You can either pay later and settle your account between 14 and 30 days after your purchase or divide the payments to repay them over several months
  • You may find that you borrow more than you can afford to pay back and may fall into BNPL debt, particularly if you overestimate what you’re able to afford
  • View it as you would with any other form of credit and never borrow more than you can afford
  • If you’re already on some kind of debt management plan, it is unlikely that you will be unable to use BNPL

Why are BNPL payment options so popular?

A huge part of the appeal of BNPL is that you don’t have to wait until you have cash in the bank before you can shop. This means that you’re able to take advantage of certain bargains, deals and discounts when they come available and only have a limited purchasing time frame.

It’s also a convenient way to purchase clothes online because it means you’re able to try before you buy, returning items you don’t want or that don’t fit before the first payment is taken.

Finance purchases

You can finance your purchases over time, helping you to spread the cost of items you may not be able to afford immediately otherwise.

Expensive fees

If you miss payments, you can incur fees, making your purchases more expensive than they would otherwise have been.

0% financing

If you make your payments on time, you typically won’t have to pay any interest on your purchases.

No credit checks

Some BNPL services don’t check credit scores before approving your purchase, which can be helpful for those new to credit or who are trying to rebuild their credit score.

Finance purchases

You can finance your purchases over time, helping you to spread the cost of items you may not be able to afford immediately otherwise.

Expensive fees

If you miss payments, you can incur fees, making your purchases more expensive than they would otherwise have been.

0% financing

If you make your payments on time, you typically won’t have to pay any interest on your purchases.

No credit checks

Some BNPL services don’t check credit scores before approving your purchase, which can be helpful for those new to credit or who are trying to rebuild their credit score.

What happends next?

If we find that you are eligible for a debt relief order, then we will complete your application for you, as this cannot be done on your own. It costs £90 to arrange a debt relief order, which can be paid in installments over 6 months, but you will need to pay the full fee before the applcation is submitted. If we find that a DRO is not suitable for you, then we will look into other debt solutions that suit your current circumstances.

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Expensive way to borrow

BNPL may work for…

As convenient as BNPL may well be in the moment if you need fast access to money for whatever reason, it’s important to note that this payment option (along with the likes of doorstep loans and payday loans) is an expensive way to borrow and can see you fall into debt quite quickly and easily.

It’s essential that you are able to afford to repay the full amount owed (with interest on top), as well as thinking about the potential consequences if you do fall behind with payments.

Using BNPL for essential purchases can be a sign of potential financial difficulties

Keep track of BNPL purchases to ensure you stick to your budget

Seek guidance and support if you’re worried

BNPL can impact your credit score

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Can impact credit score

BNPL may not work for…

As with any financial product, using BNPL payment options can have an impact on your credit score and some lenders will carry out a hard credit check each time payments are spread over a long time frame. These checks then appear on your record and if you accrue a lot of these, your credit history may be affected.

Your credit score could also take a hit if you fail to make repayments on time, as it can with any kind of credit – which is also something else to bear in mind.

Don’t ignore the situation if you’re struggling to make payments

If you don’t pay missed payments, the loan will default

Charges could be added onto defaulted loans

Court action could potentially be taken

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Why choose us?

Why choose Fresh Start UK?

Fresh Start UK has helped more than 12,000 people gain control of their finances and be debt-free. If you’re struggling with debt and finding it tough to keep up with your bills, speak to an adviser today.

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The upsides to BNPL

img Accessible to a wide range of customers

img Spread the cost of high value items

img No credit checks

img Inexpensive/free financing

The downsides to BNPL

img Fees and interest on unpaid balances if payments are missed

img Potential to put your credit score at risk

img Easy to overstretch your finances

img Potential to forgo the benefits of credit card use

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Money Helper has replaced the Money Advice Service and brings together the support and services of three government-backed financial guidance providers: the Money Advice Service, the Pensions Advisory Service and Pension Wise.