Is Buy Now Pay Later cheaper than ‘traditional’ credit?

Wondering whether Buy Now Pay Later is a good option for you? We break down what Buy Now Pay Later is and whether it is cheaper than ‘traditional’ credit.

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A shift towards online shopping and cashless transactions has changed the way we make payments. Klarna’s latest Shopping and Money Management trend reports have found that while 85% of people have heard of Buy Now Pay Later, only a quarter have actually used it.

In this article, we take a look at look at how Buy Now Pay Later works and how it compares to ‘traditional’ credit.


What is Buy Now Pay Later?

Buy Now Pay Later is a type of credit where you can make a purchase and pay for it at a later date. Its use is becoming more widespread among online retailers, through the likes of Klarna, Clearpay and Laybuy.

Typically, the agreement will let you pay after a set period of time. Or it will let you pay for the purchase in instalments.

You will tend to find that it is a short-term credit option, with the interest-free period lasting around three or four months.

Is Buy Now Pay Later cheaper?

The lure of interest-free purchases can be tempting. And if used correctly, Buy Now Pay Later could see you avoid interest charges and fees. However, it can make it hard to keep track of your purchases. And there are significant consequences if you miss a payment.

In general, if you repay the cost of your purchase within the specified time frame, then Buy Now Pay Later won’t cost you anything.

However, if you don’t clear the debt before the payment period is up, then you could be asked to pay a settlement fee, or a lump sum of interest could be added to your debt. Interest charges are typically high – sometimes reaching around 39.9%.

Having said that, it’s notable that Klarna’s Pay in 30 and Pay in 3 installments products don’t charge interest or fees at all. Even if you miss payments or don’t pay at all. But if you fail to pay, they may turn your information over to a debt collection agency. 

Whereas Clearpay charges a maximum late fee of £6 for each order below £24. If your order is above £24, it caps late fees at 25% of the original order value or £36, whichever is less. Another Buy Now Pay Later company, Payl8r, will charge interest at a daily rate for the entire period of the loan if you fail to pay. This is in addition to a £15 fee if you miss a payment. 

And in the case of some Buy Now Pay Later products, missed or late payments will show up on your credit report. So you could risk damaging your credit score if you don’t clear the debt in time.

You may also find it hard to keep track of your Buy Now Pay Later agreements, as each is attached to an individual purchase. If you use the service multiple times, you may find it hard to remember each payment deadline. And that is when you could potentially get into trouble.


What about ‘traditional’ credit?

Klarna’s report shows that 26% of Brits don’t know their credit card interest rate. It also shows that 15% only pay the minimum balance each month. But if used correctly, then a credit card is just the same, if not cheaper, than Buy Now Pay Later.

The benefit of a credit card is that it can be used in most stores. So you can spread the cost of several items and your borrowing is in one place where you manage it.

You will find most credit cards offer a 56-day interest-free period on purchases. That is as long as you pay your balance in full and on time each month.

If you need more time to make a payment, then a 0% purchases credit card can give you a longer runway. These deals tend to be considerably longer than what is offered with a Buy Now Pay Later agreement.

Using a 0% purchases credit card can give you more time to pay off your balance while avoiding costly interest charges. It will also keep all your purchases in one place. This means that no matter how many purchases you make, you only need to focus on paying off one debt at a time.

If you would like to see if you are eligible to apply for a 0% purchases card, take a look at our credit card eligibility checker.


If you do choose to use a Buy Now Pay Later service, it’s key to do your research. Try to choose one that’s reputable and whose terms you fully understand. It’s also important to note that, whether you are using a credit card or Buy Now Pay Later, borrowing money requires you to repay it. So only borrow what you can afford to pay back.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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