Buy now, pay later. For many of us these are magic words at checkout. When payday is just around the corner this can be a lifesaver for those “need not want” purchases that just can’t wait.
Most brands are happy to oblige, assuming you qualify.
You may already be familiar with Klarna, one of the biggest buy now pay later UK services. It partners with more than 205,000 merchants globally, including familiar brands like ASOS, TopShop and Marks & Spencer.
The danger of buy now pay later
Most of Klarna’s six million UK customers (and counting) probably enjoyed the feeling of delayed shopping bills. Many probably benefited from buying necessities they couldn’t afford all at once.
Trouble is, a lot of us also tend to spend more per purchase when shop now pay later apps are available. We also tend to think that our financial situations, perhaps tight and troubled now, are bound to turn a corner.
But if your financial situation doesn’t improve or it worsens, and you are unable to keep up with payments, the Klarna pay later scheme can cause big trouble for future you.
While each store’s offer and pay later services are slightly different, the principle is the same. And it can be quite punishing if you fall behind.
An example: you buy something for £150 and using a buy now pay later scheme and agree to pay it back in full in thirty days or split the cost over three months in equal instalments at a 0% interest rate (so, £50 per month). Simple enough.
But if you miss a month, pay too little or pay late, you can say hello to late fees and goodbye to that 0% interest rate. It will jump up, possibly to 19% (APR). So you’ll be paying much more than £50 each month, worsening any money problems. That’s largely why the FT has called these schemes the new debt traps for millennials.
If you have trouble with overspending, you can use Money Dashboard’s free budgeting tools to keep on top of your funds, and monitor if you are going over budget.
What about my credit score?
Good question. Credit scores and pay later deals are deeply connected.
A credit score essentially signals your trustworthiness of making repayments on time and in full. If you have bad credit, it’s unlikely you will qualify for buy now pay later apps like Klarna.
And if you have bad a credit score, even applying and being denied can further hurt your score. Applying several times in a short period also temporarily hurts your credit score.
If you are approved, and then miss a payment, that will definitely hurt your score. Missed payments can be on your record for 6 years and future lenders will be more hesitant to lend to you. So tread carefully.
Think it can’t happen to you? According to recent research, one in five UK shoppers have used a buy now pay later scheme in the past year. Of them, one in five say it has negatively impacted their credit score.
Okay, but how do I get approved?
If you want a buy now pay later deal with no credit check, I’d stop right there. If you have poor or bad credit that’s an indication you may be headed down a dangerous financial path.
Nevertheless, if you were not approved for a buy now pay later deal with Klarna or think you won’t be, there are a few things you can do to improve your chances.
According to Klarna, you can increase your eligibility by making it easier for them to run a credit check and lower their risk of lending to you:
- Ensure your name and billing address match those held by your bank account or electoral roll.
- Retry - ensuring delivery of goods to your billing address.
- Attempt to order with a lower basket value, if possible.
You can also improve your credit score with these tips.
What are my alternatives to Klarna?
Klarna isn’t the only player in town. The best buy now pay later sites that UK retailers are also partnering with are:
PayPal credit offers 0% interest for 4 months on all purchases of £99 or more. They give an instant decision on your application but it involves a full credit check, which can impact your score. PayPal Credit won’t be able to give you an indication if you will be approved before you apply. If you’re unsure, you may want to build your credit score before applying.
Laybuy offers 0% interest on a purchase, with payments spread the total cost over 6 weeks. They conduct a credit check, which can impact credit scores. They work with retailers like WHSmith or JD Sports.
Clearpay works with retailers like Boohoo to offers customers interest-free instalment plans by splitting a purchase amount over 4 instalments, charged to your chosen debit or credit card in 2-week periods. It does not run a credit check, so you may be able to use it with a bad credit history, but missed payments will affect your credit score.
Can I shop on Amazon with buy now pay later?
Buy now pay later deals and PayPal are not accepted on Amazon. You need to use a normal credit or debit card.