Buy Now Pay Later (BNPL) providers skyrocketed in popularity during the pandemic. Makes sense, right? Out of necessity, a lot of shopping moved online and retailers became more adventurous with their customer experiences. In 2019 one of the industry’s biggest disruptors, Klarna, was valued at $5.5 bn; by 2021 it had reached $46 bn. PayPal, Afterpay, Affirm, Sezzle, and dozens of other companies offer similar financial products.
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Paying for goods in regular instalments is as old as money. So what makes today’s BNPL providers different?
First, it’s attached to cheaper goods. Today, you can choose an instalment-based payment plan for clothes, holidays, sports gear, and other goods which are typically not as expensive as a kitchen appliance. Until recently, most people would have paid for them in one go.
Second, flexibility. BNPL providers offer several different payment plans on any given product. It doesn’t affect your credit score unless you make a late payment, and it’s easy to access if you’re over 18, pass their affordability assessment (not the same as a credit check), and shop with a partnered brand.
What we’re talking about is effectively debt. This can sometimes be a good thing—for example, a well-used credit card can boost your credit score if all your payments are made on time. But debt and interest can spiral quickly if you take on more than you can keep up repayments for. Klarna does not improve your credit score, but it will worsen if you miss a payment, alongside late payment fees and rising interest on what you owe.
BNPL providers often partner with, and advertise on, websites designed for a younger adult consumer who may not be so financially savvy. The rules of thumb for any other kind of debt apply just as much here: read the small print, budget your repayments, and be clear and honest with yourself about why you’re taking it on.
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Blog Post by Rosemary Taylor
[DISCLAIMER – Money4YOU is not a registered provider of financial advice. You should always seek a regulated financial professional’s advice before making major financial decisions.]