Read in the Mirror online


In the past few years, a very old form of credit – ‘buy now, pay later’ – has had a dramatic makeover.

So dramatic, that its almost unrecognisable from the old shop credit that your parents might have used to buy a sofa on an interest-free deal in the past. 

Lately, this new form of credit has come in for a lot of attention, not all of it positive.

And it’s true that complaint levels are increasing dramatically, with around 5,000 complaints in just six months over lockdown.

But is that a result of it’s increasing popularity, or a hint at something more sinister lurking below the easy-to-click payment options and glamorous Instagram promotions?

Here’s how it all works – as well as your other options when it comes to splitting, or delaying, the bill for something you buy”

Interest free deals

In theory, you don’t have to go straight for buy now pay later credit when there are lots of interest free options out there for people who want to buy goods and delay payment for a while. But all come with catches. 

There’s a huge range of interest-free purchase deals on credit cards – but you’re going to need a good credit score to get through the door.

The best of these let you split the cost over almost two years before charging anything in interest and you can actually check with some credit reference agencies in advance to see if you might pass some lender’s tests.

But these aren’t for impulse buys – it can take a few weeks for the card to arrive and you need discipline.

If you don’t make a plan to repay the balance before your interest-free period expires – or fail to make the minimum payments each month – you could end up paying serious amounts of interest as well as seeing your credit score hit.

But if you have any credit card at all, you can delay paying for more than a month.

That’s because there’s a gap between when you spend and when the statement is due. As long as you pay that bill in full when it arrives, you should be able to delay paying for more than a month without any charges.

New buy now, pay later (BNPL) options

With the rise of online retailers and a dramatic shift in the way we shop, this form of credit has been ‘reimagined’ and repackaged.

In essence, it lets you to purchase goods or services and pay at a later stage, either in instalments with or without interest. 

There are two main types of BNPL deal:

Old BNPL credit is the more traditional longer-term deal offered by retailers through their own credit schemes. This allows you to pay for goods over a fixed period of time, usually two or three years, though longer for ‘big ticket’ items. These deals may come with an interest-free period where no interest applies if (and it’s a big if) you pay the full amount during this period. Otherwise interest applies. These deals are usually regulated. 

New BNPL credit is usually provided by a third-party credit firm at the online ‘till’. It allows you to pay in a variety of different ways for goods and services. However, some deals are regulated, and some are not. The big firms in this sector are Klarna and Clearpay. 

How new BNPL credit works

The options vary but generally fall into the following categories:

Try before you buy

This is where you have a short period of time – usually 28 days but sometimes as low as 14 days – to try goods before committing to buy them.

Of course, you can’t pop on a frock, go out and send it back, no matter what you might read on Instagram. These deals allow you to try things on, check goods out and see if they work for you before committing to buy.

However, if you don’t return the goods on time you could find you’ve bought them. 

Limited instalments

The most well-known form of BNPL deal works by letting you pay in a limited number of instalments interest-free.

This means you can buy things up front that you may not have the money for in full at point of purchase.

However, you have committed to buy. 

There’s also a third form available at many of the newer providers.

Credit agreements

These deals are closer to the older BNPL deals in that you pay in instalments over a longer period and pay interest.

This isn’t as high as some retailers charged in the past – it’s usually less than credit card interest, for example – but is still higher than a standard bank loan. 

Sounds good – so what’s the problem? 

New BNPL companies like to say that you won’t pay interest and they won’t log debts with credit reference agencies. So what’s the catch? 

The problems occur when you can’t pay.

The world is a volatile place at the moment, and you may suddenly find yourself out of a job with bills to cover.

While BNPL firms may not charge debt interest, Resolver’s users have told us they are often quick to pass on debts to debt collectors who have a whole range of penalties and pressure tactics.

Many of the complaints we’ve heard have come from people who’ve had debts passed on for relatively small sums. 

The 14 and 28 day deals are frustrating because they gloss over your consumer rights.

If you buy online you have a 14-day window to change your mind anyway for most purchases (not all though). 

You also have 30 days to return goods that aren’t as advertised or may have been misrepresented.

This form of credit effectively monetises the act of buying something and returning it if you don’t return the goods in time.

This seems rather unfair, given that we need to try some goods like clothes to see if they fit.

It’s not uncommon for people who order three of the same items of clothing to try on to find they’ve bought them because they didn’t get the goods back on time. 

But the issue that’s proved most contentious is the way some retailers have sold these deals as lifestyle products rather that a financial commitment that has penalties.

Many people have objected to retailer websites encouraging people to spend money they don’t have with little warning about consequences.

Others have highlighted how easy it is to get into debt with multiple retailers or lose track of what you’ve spend if you’ve got a number of deals running. 

What about the older BNPL deals? 

The longer term, higher interest, old BNPL deals are very much still around and make up roughly half of all complaints.

You can spot them because they are longer term (usually over a few years) and often use interest-free periods as an incentive. 

These deals work on a rather clever bit of psychology.

We all think that we can beat the system by paying off the goods during the interest free period.

But lots can go wrong in life on the way and many, many people end up paying the higher interest.

So the FCA introduced new rules. This means that the most outrageous problem with this form of credit – charging interest on the whole sum borrowed – will not be allowed.

The rules say:

Businesses can’t charge you interest on the whole amount borrowed – only the amount of your loan outstanding when the interest-free deal ends.

They have to make it much clearer how the deals work.

They have to prompt you to let you know the interest-free period is ending.

However, interest rates are still high, and many people still get into significant financial difficulties.

What if I can’t afford to pay?

Whatever the deal, if you’re struggling to pay money you owe, contact the firm you’ve borrowed money off as soon as possible and ask them what your options are.

Don’t borrow to get out of debt. If you feel the firm isn’t helping, go to the Financial Ombudsman if it’s a regulated agreement. If not, report the firm to the FCA and contact a free service like StepChange if you’re really struggling with your finances.

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