Buy Now, Pay Later: What It Is and How It Works

Buy-now-pay-later (or post-purchase-payments) is where you pay for something in small instalments over a set period of time.

It’s becoming the Number One choice when consumers have an urgent need to replace or purchase something, but don’t have the cash to pay up-front. Afterpay and Klarna are some popular examples you might have heard of.

Buy Now Pay Later is becoming a common payment method at some high-street shops, but it’s more commonly used by catalogues and online retailers. Their products are often aimed at young people and families, with discounts, if you use the #BNPL service on shops such as H&M and Coach.

The global BNPL platforms market was valued at over £5.2 billion in 2019 and is expected to reach over £24 billion by 2027. A new report commissioned by Klarna has revealed that BNPL accounted for almost 4% of all online retail sales in the UK in 2020 with over 10 million users. 

Paying in instalments is not a new concept. Gen Z and Millennial generations are demanding choice and tend to be more careful about using traditional credit cards. The current economic climate is expanding the audience for instalment plans to Gen X and Baby Boomer shoppers who might previously have been uncomfortable with the idea.

Individuals laid off or furloughed are likely to be very conservative when it comes to spending and BNPL offers those consumers the ability to control payments and avoid putting a large purchase on a credit card where they might also incur interest charges. It also gives consumers the ability to buy something now rather than having to save up for it. 

Buy Now Pay Later providers include Klarna, Clearpay and Laybuy here in the UK. These companies offer a range of payment options. Some agreements will let you pay after a set period of time while others will let you pay for your purchases in instalments

However, if you don’t make payments on time you might have to pay penalty fees or charges. Any rights or protections you have will depend on your chosen payment option.

That’s why it’s vital to keep track of:

  • How much you’ve paid

  • How much do you still owe

  • Your repayment dates

  • How many different Buy Now Pay later agreements do you have

While a post-purchase-payment scheme can be a great way to spend without paying upfront, you could get the same benefits simply by applying for a credit card and paying yourself back. The onus is on the buyer to recognise his/her financial limits and not to buy more than they can later pay for.

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