'Buy now, pay later' services make it easy to spread the cost of a purchase over time, which is why they’ve become such a popular payment option. While this can be convenient, especially when managing larger expenses, it’s important to understand how ‘buy now, pay later’ works and what it means for your finances. Here’s a closer look at what to consider.
What is buy now, pay later?
'Buy now, pay later' services allow you to make purchases through participating retailers and repay the cost over a series of instalments, rather than paying the full amount upfront.
These services typically don’t charge interest, but may charge other fees or charges such as late fees if repayments aren’t made on time.. While ‘buy now, pay later’ can offer short-term flexibility, it’s important to remember that it’s still a form of credit.
How do buy now, pay later services work?
‘Buy now, pay later’ services can usually be used both online and in store at eligible retailers. At checkout, you select the ‘buy now, pay later’ option and agree to repay the purchase over a set schedule – commonly four instalments spread across several weeks.
The total cost of the item doesn’t change as long as repayments are made on time. However, missing a scheduled payment can result in fees, increasing the overall cost of your purchase.
What are the risks of using buy now, pay later?
Because ‘buy now, pay later’ repayments are often smaller and spread out, it can be easy to underestimate how much you’ve committed to, particularly if you’re using multiple ‘buy now, pay later’ services or making several purchases at once.
Without careful tracking, repayments can overlap and place unexpected pressure on your budget. Missing payments may also lead to fees and make it harder to stay on top of your finances.
Keeping track of your repayment schedule and factoring ‘buy now, pay later’ commitments into your budget can help reduce the risk of debt building up over time.
Are these services required to run credit checks?
Most ‘buy now, pay later’ services do not have to run credit checks on customers. However, many do reserve the right to request credit reports on customers if it’s stipulated in their terms and conditions. Credit checks are conducted by financial institutions to follow responsible lending regulations. This is done to avoid lending to anyone who has accumulated excessive debt or struggles to make their repayments, getting into more debt. These providers are not subject to the same responsible‑lending rules as traditional credit providers, there may be fewer safeguards to stop you taking on unaffordable debt, so it is especially important to assess your ability to repay.
Whether you’re signing up for a credit card or taking out a loan, the financial services industries have long been held to codes of conducts and regulations in order to protect applicants. With shoppers now using ‘buy now, pay later’ services to purchase non-essential items, it can be easy for them to unwittingly increase their debt. | Greater Bank
For example, if someone had credit card bills to pay and couldn’t afford the latest smartwatch, purchasing the item with ‘buy now, pay later’ could put them into further debt down the track.
Can 'buy now, pay later' services affect your credit score?
Unlike paying off a loan or credit card, ‘buy now, pay later’ services cannot improve your credit score. However, they do have the potential to damage your credit score. If you don’t meet your repayments, a ‘buy now, pay later’ service provider reserves the right to report negative activity to credit rating agencies, which could result in a black mark on your record. This could affect your ability to get a good rate or take out future loans. Therefore, it is important to stay on top of repayments for ‘buy now, pay later’ services.