The focus of this week’s ‘MABS investigates’ is Buy Now Pay Later or BNPL.
BNPL providers are quite new to the Irish market, and we are here to help highlight some things to consider if you decide to enter a Buy Now, Pay Later loan.
In general, Buy Now Pay Later can help spread the costs of making a purchase with or without interest. Some call them the “modern-day layaway” and they are on the rise in Ireland. Whether it’s through Personal Car Plans (PCPs) or through online retailers, you should know and understand what you are signing up to.
Keep reading to learn more about how Buy Now Pay Later works and what to look out for.
What is Buy Now Pay Later (BNPL)?
“Buy Now Pay Later” is a way for a consumer to purchase a product(s) from a shop or business and spread the cost of it over a number of months or years. It can be an affordable way to purchase high-cost goods, such as washing machines, fridges, TVs, furniture and so on.
If you do not have the money to pay for the goods or services upfront, there may be an option from a financial company associated with the seller, such as Humm or Tech Credit for example. This will allow you to spread the cost of the product over an agreed period. The agreement should list the agreed interest rate (if one). It should also set out the repayment details including the total cost of credit and the total amount of interest charged.
How much interest do I have to pay if I opt to Buy Now Pay Later?
BNPL providers offer a variety of payment options that allow consumers to buy products or services later or in instalments. Some options include interest charges and others do not. Charges will vary dependent on the provider and the type of repayment option you choose. Examples are:
The total amount of your purchase is divided in to instalments that can range from anywhere between 4-24 payments. You normally have to pay an initial deposit payment at the point of sale. These are often described as interest-free. However, be aware that if you miss a payment, you can be charged expensive late fees and these fees can build up if you continue to miss payments!
The total payment of goods is deferred for a specified period of time (e.g. 14 or 30 days). If you purchase an item in full within this “interest–free period” you do not pay any interest charges. However, interest is charged if you still owe something after this initial period. Typical interest rates range between 3.99% to 39.9% APR. It is important to be aware that interest rates are variable and the amount of interest you are charged can change daily.
This is the most traditional form of BNPL. This is where a formal payment plan is agreed upfront, and you are typically charged interest and agree to a standard credit check. Before borrowing, lenders should inform you of the APR (Annual Percentage Interest Rate) that you will be charged. Late fees and penalties apply, and these can (potentially) be reflected on your credit report. This could impact your ability to borrow in the future. The interest rate, late fees and penalties should be listed in your payment plan.
Is BNPL regulated?
Currently, not all the firms offering this service are regulated. When you ‘Buy Now and Pay Later’ you are entering into a formal agreement with a company to pay for your goods and/or services.
The way each company operates varies. Some of the things that can differ between companies include: what credit checks they do, what interest they charge, what they will do if you default, what rights/recourse you have and if the company reports their transactions on the Central Credit Register (your credit history).
A number of Buy Now Pay Later companies are not currently regulated in Ireland. However, the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill 2021 is set to change this. The bill before the Dáil will provide regulation to credit services, such as BNPL providers.
What happens if I can’t pay back the loan on time?
It is important to note that different finance companies offering a ‘Buy Now Pay Later’ scheme have different Terms & Conditions when it comes to repayment of the service they provide. While one may allow you to repay up to 6 months later or within an agreed timeframe, others may require payments to be made within one calendar month, after you have signed up to use their service.
If you default on a repayment (meaning you have failed to make the contractually agreed repayment amount) they may call you and/or write to your address advising of a specific timeframe for you to pay the missed amount. It may also be notified on the Central Credit Register that you have failed to make a payment, even if you make it up some time after it has happened.
If the payment has not been made and you have failed to respond to their efforts to contact you, they may deem the contract null & void. This may mean that the full amount is due immediately. It may also be passed over to a legal representative or a third-party collection service, which may cost additional fees and add to the balance that is already outstanding. In certain cases, depending on the item you have bought and the contract, repossession of the item can happen.
If you are about to fall into arrears or feel you are risk of falling into arrears with them, Buy Now Pay Later firms do encourage you to contact them. They can work on a solution to address this going forward. Not all Buy Now Pay Later schemes are the same and some carry different Terms & Conditions depending on the amount required and the timeframe it is to be repaid over.
Are there alternative options?
Yes, there are other options.
Can you afford to buy it now and pay for it now?
If you can afford to pay upfront, there is no point in dragging the payment out over a number of payments.
Is the item a necessity? Do you need it right now, or can you delay your purchase, giving you time to save for it?
Can you hold off on the purchase until you are able to pay for it upfront? If the arrangement involves you paying interest charges for late or non-payment, you could end up paying a lot more for the item than its original value.
If you enter an arrangement with a firm that’s regulated, and the amount is over €500, you could end up putting a black mark on your Central Credit Register Report.
Can you source the item you need elsewhere for cheaper or for free?
Sites like https://www.donedeal.ie/ and https://www.adverts.ie/ could provide a cheaper alternative to the item you are looking for. Not to mention community boards or Facebook pages and charity shops. I recently found myself in need of an armchair, so I checked my neighbourhood Facebook page. Luckily, one of my generous neighbours was giving away a chair. Having saved on the armchair, I looked online for a velvet cover for it and for the cost of €22, I have a new chair.
Would it be safer to use an alternative form of credit?
If the item is a necessity and needs to be purchased immediately (e.g. a fridge), depending on the Terms and Conditions of the Buy Now Pay Later arrangement, you may be better off considering accessing an alternative form of credit.
Some Credit Unions offer a form of microcredit. This loan is called the “It Makes Sense” loan. These loans can be between €100 and €2,000, with a repayment time of between 1 month and 2 years. The maximum interest rate that can be applied to this type of loan is 12% (12.68% APR). Importantly this type of loan is accessible to people in receipt of Social Welfare.
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You can call the MABS National Helpline on 0818 07 2000 Monday to Friday, from 9am to 8pm, WhatsApp 086 035 3141 or find the contact details for your local office.
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Disclaimer: While every effort is made to make sure this information is accurate and correct, we strongly recommend that you do your own research and make your own informed decision.