‘Buy Now Pay Later’ (BNPL) providers are relatively new to the Irish market. Today’s blog is here to help highlight some things to consider if you decide to take out a Buy Now, Pay Later loan.
In general, ‘Buy Now Pay Later’ is a source of credit that helps spread the cost of making a purchase with or without interest. Some call them the “modern-day layaway” and the use of this type of credit is on the rise in Ireland. In November of 2021, the financial company Klarna launched in the Ireland and in the two following months it received nearly 38,000 app downloads.
If it is through online retailers, you should know and understand what you are signing up to.
Keep reading to learn more about how BNPL 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. In other words, buy or take possession of the product now, and pay for it later or over time. It can be an affordable way to purchase high-cost goods, such as washing machines, fridges, TVs, furniture and so on.
Let’s look at an example. You need to buy a washing machine. The one you had, has broken down, but you do not have enough money in your account to buy a replacement.
What are your options?
First, ask yourself if this is an essential item. Could I wait until I have saved up over a period of time for this specific item? If the answer is no, and it seems urgent then the second step is to shop around for the best value. Once you have found the best value, ask yourself if you have any savings to cover the cost. If not, then consider support such as the Additional Needs Payment. If these options are not available to you, you might consider BNPL and other alternative credit options. It is important to compare the interest rates applicable to each credit option. Some BNPL providers offer an interest-free payment option, and if you can afford to pay the repayment within your budget, this may be a good option for you.
Many financial institutions such as Paypal and Revolut also offer the Pay Later option. This will allow you to spread the cost of the product over an agreed period.
The credit agreement should list the interest rate if interest is applied. It should also set out the repayment details, including the total cost of credit and the total amount of interest charged. It may also list the interest-free period if there is one.
‘Try Now Pay Later’
A new service that is becoming trendy is “Try Now Pay Later” or “Try Before You Buy”. This is where you order items such as clothing or footwear, try them on at home, and only pay for the items you want and return unwanted items. This still fits into the “Pay Later” category as you’re still committing to an agreement to purchase and be bound by the terms and conditions of that agreement. It also comes with the additional responsibility of returning items you don’t want within a specified timeframe. If you opt to “Try Now Pay Later”, and are returning items, like with any other return, always get proof of postage.
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 pay for products or services later or in instalments. Some options include interest charges and others do not. Charges will vary depending on the provider and the type of repayment option you choose. Examples are:
Pay in Instalments
The total amount of your purchase is divided into 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, which can build up if you continue to miss payments!
The total payment of goods is deferred for a specified period (for example, 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 23% (or up to 39.9% APR if the provider is registered as a Moneylender). It is important to be aware that interest rates are variable and the amount of interest you are charged can change daily.
Pay on Finance
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) 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. Your payment plan should list the interest rate, late fees, and penalties.
Is BNPL regulated?
Since May 2022, all Buy Now Pay Later providers must be authorised by the Central Bank of Ireland to operate here. When you ‘Buy Now and Pay Later’, you are entering into a formal agreement with a company. The agreement is 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).
Any company or provider of BNPL services are also subject to an interest rate cap of 23%.
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 for repayment of the service they provide. One company may allow you to repay up to 6 months later or within an agreed timeframe. Another company 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, they may call you and/or write to your address advising of a specific timeframe for you to pay the missed amount.
*Default means you have failed to make the contractually agreed repayment amount by the agreed repayment date.
Depending on the amount you borrow, a default could be notified on the Central Credit Register. This would flag that you have failed to make a payment. A flag can remain on the register up to five years, even if you catch up with payments. Having a flag or notification on your credit register may impact your ability to access credit in the future.
If the payment has not been made and you have failed to respond to their efforts to contact you, they may deem there to be a breach of contract. This could mean that the full amount is due immediately. It could also be passed over to a legal representative or a third-party collection service. This could lead to 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.
What happens if I cannot afford to pay?
If you are about to fall into arrears or feel you are at risk of falling into arrears with the credit provider, then contact them without delay. They can work with you on a solution to address this going forward. If you can’t talk to the credit provider, contact us, and we’ll help you work on a solution with the credit provider. Not all Buy Now Pay Later schemes are the same. Some carry different terms and conditions depending on the amount required and the timeframe it is to be repaid.
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.
Do you need it right now?
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 paying interest charges for late or non-payment, you could pay a lot more for the item than its original value. Check out our Before You Borrow page for some helpful tips on your options if you decide you need to borrow.
If you enter an arrangement with a regulated firm, 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 DoneDeal and Adverts could provide a cheaper alternative to the item you are looking for. Not to mention community boards or Facebook pages and charity shops.
Let’s look at an example – Mary recently found herself in need of an armchair. She checked on her neighbourhood Facebook page. Luckily, one of her generous neighbours was giving away a chair. Having saved on the armchair, she looked online for a velvet cover for it. For the cost of €22, she has 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 (for example, 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 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.
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.
Note: We welcome references to and use of the content in this blog. However, please reference MABS and link said content if you choose to do so.