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Is Buy Now Pay Later (BNPL) Soon to Replace Credit Cards in the UK?

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According to fresh insights, young people are increasingly ditching credit cards in the wake of BNPL.

And the biggest provider in the BNPL scheme has seen a whopping sale of over 7 million to 16 million since 2020.

Buy Now Pay Later is becoming popular for online retailers and high-street shops as a common payment method. It is because their primary customers are young people and families.

What is Buy Now Pay Later?

Buy Now Pay Later (BNPL) is a way of buying goods on credit and paying later through regular interest-free installments. The common vendors for these are – Klarna, Clear pay, and Laybuy. These companies offer flexible options. The interest-free buy-now-pay-later agreement came into force on 2nd February 2021.

In this, on either pay in installments or after a set period of time. Buy Now Pay Later can be extremely beneficial when you do not have the cash to buy the product right away or do not want to go for short term loans for unemployed, either. However, maintain the regular installments.

Not making payments on time can land the borrowers in trouble, as then they will have to pay the penalty fee as well. Hence, it is important to keep a track of:

  • How much have you paid?
  • How much do you still owe?
  • Repayment date
  • How many Buy Now Pay Later agreements do you own?

Credit Cards Vs. Buy Now Pay Later Scheme: Benefits of Buy Now Pay Later

According to a prediction, credit card balances are not expected to return to the UK until 2023. Here are some benefits of Buy Now Pay Later:

             Buy Now Pay Later                         Credit Cards
BNPL allows the customer to split the costs of their purchases into multiple interest-free payment options                 A credit card statement must be paid in full after it has been released.
It offers multiple free schemes for customers  It does not have any such schemes
Customer do not need to pay interest on credit, to obtain credit, the retailers charge a fee on the transaction Consumers pay an interest rate to get a credit
It is a cheap alternative to other forms of credit Customers find credit card a liability and qualifying for credit is also critical.

How Does Buy Now Pay Later Works? 

In Buy Now Pay Later, a customer has to apply through the provider first. After selecting one of the BNPL providers, you will be sent a short application form. The provider you choose will conduct a few credit checks before granting you BNPL approval. It is done as a part of identity confirmation and credit file confirmation.

The primary benefit here over credit card usage is, the authorities conduct a soft credit check instead of a hard one to provide the credit. Apart from that, the application process is quick compared to credit cards.

Once you sign up for Buy Now Pay Later, you are given a credit limit up to which you can spend. The amount purchased comes from the balance available to you. Initially, your purchase is financed by Buy Now Pay Later creditors, then you will have to pay the complete account either in installments or full, according to the repayment option you choose.

Who Should use Buy Now Pay Later?

BNPL has become a popular way to buy things because it allows customers to buy things they want but cannot afford the same in one go. And many times, the customer wants to benefit from an interest-free way of borrowing.

Therefore, BNPL emerges as one of the captivating alternatives to credit cards, as you do not need to pay anything to access it or use the credit. A soft credit check doesn’t affect the credit score. The one who should use this can be:

  • It is ideal for someone who wishes to have a more credit card limit
  • Avid shopper, who likes to shop quite often
  • Finds making credit card repayments stressing
  • Finds securing a credit card challenge
  • It is especially for those who wish to buy big-ticket items and spread repayments for the same
  • It is for someone who doesn’t want to keep anything upfront for something one can’t keep
  • BNPL doesn’t charge interest, so if you are looking for interest-free credits, Buy Now Pay Later is just for you.

Pros and Cons of using Buy Now Pay Later

However, Buy Now Pay Later seems promising and captivating to the borrowers. Everything has its consequences.

Pros of Buy Now Pay Later

  • BNPL provides more financial flexibility to customers by enabling them to purchase anything despite a critical financial situation
  • It enables customers to leverage discounts at different online stores.
  • It offers the customer the choice of choosing from multiple payment options.
  • Spreading payments over 3-7 repayments for months significantly reduces the cost of large orders and makes them more affordable for buyers.
  • It does not accrue interest on the credit.
  • A customer can buy anything immediately, even when he does not have the finances to
  • It leads to increased customer satisfaction.
  • Helps the customer manage the monthly expenses and have control over finances.

 

Cons Of Buy Now Pay Later

  • BNPL providers charge increased merchant fees. This fee is typically higher than the standard payment type. The merchant fee lands anywhere between 2-6%
  • However, BNPL grants the option to pay later. It can be problematic for someone who shops excessively. Increased payments and late fees can be daunting.
  • Delay or missed repayments can affect the credit score and credit report, leading to complications in securing unsecured tenant loans
  • Because of great and easy accessibility, making regular payments becomes challenging.
  • One drawback of Buy Now, Pay Later is- It is not for everyone and not everyone is approved of the same. The BNPL companies conduct an eligibility test to analyze whether you can afford the repayments.

The consumer can face complications if he does not get the product in the right shape. Apart from that, meeting the BNPL payments and the product payment can be daunting.

 

Thus, before selecting or going for Buy Now Pay Later, question yourself:

  • Whether taking up BNPL credit is a want or a need?
  • Will the payment fit your budget?
  • Will you be able to maintain the repayments according to the plan you choose?
  • Are you willing to set automatic payments?

By answering these questions, you can maintain both BNPL and cost of purchased items effectively.

Bottom Line

While buying now and paying later has its advantages, it is risky as well. Getting used to it can inadvertently affect your credit. Ignore BNPL if you aren’t sure of spending or maintaining a spending limit. Most individuals purchase extra with the flexibility of paying later, and this affects their finances.

Even if you use it, be careful about buying the big-ticket item. Analyze how much it will cost you after the repayment. The downside is that late or missed payments can adversely affect your credit standing or credit score.

And as a BNPL user, you do not share the same protection as you do with credit card retailers. There are alternatives available to BNPL like credit cards and overdrafts. But if you need money for a short time, Buy Now Pay Later is a great option.

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