Buy-now-pay-later can help you make a purchase without having the money in your bank. But what’s the catch?
What is buy-now-pay later?
‘Buy-now-pay-later’ (or post-purchase-payments) is where you pay for something in small instalments over a set period of time. It’s perfect for when you have an urgent need to replace or purchase something, but don’t have the cash to pay up-front. Afterpay and Klarna are some popular examples you might have heard of.
How does it work?
It’s pretty simple. You essentially just borrow the money you need from a post-payment company, and agree to pay it back later. Some schemes give you 30 days to pay, while others let you pay over months or even a year.
Weighing up the risk
Like with any repayment scheme, buy-now-pay-later comes with its share of pros and cons. Let’s take a closer look…
Pros of buy-now-pay-later
• Helps you make your purchase: the obvious benefit is being able to buy what you need without the money in your bank
• They’re (usually) interest free: most buy-now-pay-later schemes won’t charge you a penny of interest if you pay back on time
• Could help your credit score: technically, buy-now-pay-later is a type of credit, so it could help you build your credit rating if you keep on top of payments
Risks of buy-now-pay-later
• Missed payments will cost you: if you miss your payment deadline, you could find a lot of interest added to your debt, not to mention late payment fees…
• Don’t make it your default: if you make buy-now-pay-later your default way to spend, it can be all too easy to lose track of what you owe. Even those £10 monthly repayments can stack up over time
• Could damage your credit score: failing to pay back on time could put a black mark against your credit report, lowering your score for up to six years.
• Make you seem less trustworthy: having lots of buy-now-pay-later repayments at once could be a warning sign for lenders, making it look like you’re constantly in need of extra credit. This could make things difficult when applying for a big loan such as a mortgage
What are the alternatives to buy-now-pay-later?
While a post-purchase-payment scheme can be a great way to spend without paying up front, you could get the same benefits simply by applying for a credit card and paying yourself back. Alternatively, why not use your Yolt Money Jar to build up a little bolster fund for when you need to make those urgent purchases?