Ever found yourself short of cash? Have you considered a buy now pay later credit card? This newish form of credit is gaining popularity, especially amongst younger consumers. But what is it? And why would you want one?
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What is buy now pay later?
Buy now pay later credit is usually offered at the point of sale. It is usually a type of online credit rather than a physical credit card (though the likes of Tymit offers a card alongside its app). You may well have seen the likes of PayPal Credit or Klarna offered to you at checkout when shopping with some online retailers.
It basically does what it says on the tin. It gives you a form of credit so you can purchase your item now, but pay it back at a later date. Typically, you will find these schemes have a promotional period that is interest free. This can range from months to just 30 days depending on the provider you choose.
It is also typically tied to the purchase of one item or one transaction. It’s not a form of credit that you can take out and then use on several different purchases.
What are the advantages of buy now pay later?
The main advantage of buy now pay later is that if you want to purchase something but don’t have the money, you don’t have to wait until payday. It provides you with short-term credit. This means that if, for example, there is an outfit you really want for a special occasion that’s coming up before payday, you can go ahead and buy it.
Buy now pay later credit is also relatively flexible. You obviously have the interest-free period before you have to pay for the item. With some services you can also choose to pay it back in installments.
If you choose to pay in installments, you will have a set number of monthly payments to make over a specified period of time. Once you have paid your final installment, you will have paid off your item and no longer owe any money. An installment scheme can help to spread the cost of your purchase. It can also encourage you to make regular payments to clear your balance.
Could you be rewarded for your everyday spending?
Rewards credit cards include schemes that reward you simply for using your credit card. When you spend money on a rewards card you could earn loyalty points, in-store vouchers airmiles, and more. MyWalletHero makes it easy for you to find a card that matches your spending habits so you can get the most value from your rewards.
Are there any disadvantages of buy now pay later?
Yes. As with any form of borrowing, there are downsides if you don’t use it sensibly. If you don’t pay off your item in time, you could be charged interest. And with this type of credit, the interest rate is typically quite high. So, you could find that despite buying a small item, your level of debt will increase quite quickly.
There are other ramifications. If you miss a payment, you could lose your promotional period and be required to pay a settlement fee or a lump sum of interest. This will depend on the terms and conditions of the credit scheme you have taken out. Even if you aren’t required to pay a settlement fee, you will most likely have to pay a late payment fee.
Taking out buy now pay later credit could also potentially damage your credit score. It depends on whether the provider conducts a ‘soft search’ or ‘hard search’ as part of your application. If it’s a soft search and you miss a payment, you may find your score unaffected. However, if the lender conducts a hard search, they are more likely to report any missed payments to the credit reference agencies, and this would then show up on your report.
Who are buy now pay later credit cards best for?
Buy now pay later credit is best suited to those who know they will be able to afford to pay off the amount borrowed before the end of the interest-free period. It’s also suitable for those who are only looking to do some short-term borrowing, as these credit schemes are usually only for a couple of months.
If you struggle with debt or overspending, taking out buy now pay later credit is probably not the best idea. It makes it too easy to shop now and worry about it later. And if you do miss a payment, you could significantly impact your credit score and have to pay interest and charges.
Similarly, if you are planning on making a large purchase but want longer to pay it off – or you would like a credit card to make several different purchases without having to pay interest – a 0% purchases credit card is likely to suit you better. Here you can find longer interest-free periods. And you can use the card for multiple purchases, not just one, which is typically the case with buy now pay later credit.
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