Personal FinanceRetail & Shopping

Buy Now Pay Later: Good Deal Or Dubious Debt?

Women on sofa with shopping bags. Shopping online on laptop

People who have bought something online in recent months may have been promoted with a new option: use a service such as Klarna to pay for your shopping at a later date.

While store credit had long been an option, services like Klarna and Afterpay are making it easier than ever: simply fill out some of your details online to instantly set up your account and checkout without paying a penny. Lots of high street chains – particularly fashion brands like ASOS, Very and JD Sports offer this option, but how does it all work, and is it a good idea?

What is Klarna used for?

The appeal of this type of payment option is fairly obvious: get the shopping that you want now, and don’t pay anything until you have the money. Some people use pay later schemes to shift the cost of something to after payday, or to spread it over several months.

Are there any other benefits?

Paying after your purchase has been delivered can give you some peace of mind, as you shouldn’t have to pay if anything goes wrong, such as the order never arriving or not being suitable. Under normal circumstances you would have to wait for a refund, but with buy now pay later the money would never leave your account.

Women unpacking parcel delivery

Most of these services also charge no fees or interest, making it cheaper than using a credit card.

How do you sign up?

Applying to use one of these services is really simple. Typically, you’ll be given the option when you reach the checkout, and if you select it then it will ask you for a few personal details. At this point they’ll run a soft credit check – the kind that doesn’t show up on your credit report – to determine whether you’re eligible. You’ll receive an instant decision.

At this point you’ll also be given the option of creating an account. This will give you access to the app so that you can track your payment and even manage some aspects of your order.

What are the risks?

Although signing up for these services won’t hit your credit score, missing a payment would, so it’s very important to only sign up if you know that you can afford to make repayments. With most credit, a good rule of thumb is to only use it if you know exactly where the money will come from.

It’s great to have a backup in case your payment plan falls through, too. An example of this might be planning to pay the balance on payday, but knowing that you can cover the expense with you savings if you have to.

What’s the final verdict?

This type of buy now pay later arrangement can be a responsible way to manage your money, but only if you understand what you’re signing up for. Some have raised concerns that the ease of these services make them a gateway to other, more dangerous forms of debt. That doesn’t have to be the case, but make sure you’re checking in with yourself regularly to be sure that your spending is under control.

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