Buy Now Pay Later and Your Credit Score

4th Jan 2024

In recent years, Buy Now Pay Later (BNPL) services have become a common feature of many online shopping websites, allowing you to spread the cost of both large and small purchases over several months. Some of the big names in the UK buy now pay later market are providers like Klarna and Clearpay. Perhaps as a consequence of the cost-of-living crisis, the user base in the UK for buy now pay later credit companies has soared to 17 million in recent years. There is no denying that BNPL is convenient for customers, but it also comes with risks. Although when used correctly a BNPL agreement doesn’t involve paying any interest or fees for, it is still classed as debt and credit, and will be listed on your credit report. If you use too much of this short-term credit, it could impact your ability to get other forms of credit like a car loan or mortgage.

Understanding Buy Now, Pay Later

Buy Now, Pay Later allows consumers to purchase a product immediately and pay it off over the following few months. The BNPL company pays the retailer upfront, and the user repays the BNPL company according to the agreed terms, often within 30 days or through installment plans. Each of the companies offering this type of credit operates in a different way, so it’s important to know what you are signing up to before clicking that “buy” button.

Cost of Buy Now, Pay Later

When used appropriately, BNPL should not cost you anything extra when compared to buying directly from the retailer and paying immediately. BNPL companies generally charge retailers, not users. Late payments, however, may result in fees, usually around £6, and persistent delays can lead to multiple charges. If you have bought something from Clearpay or Klarna and are struggling to make repayments, the best advice is to contact the company to discuss the situation before slipping into default.

Impact on Credit Score

The impact on your credit score depends on the BNPL provider. Presently, only Zilch users see their BNPL activity affect their credit score, with missed payments having a negative effect. Klarna and Laybuy have begun reporting to credit agencies, but this information doesn't impact credit scores as of now. Future plans might treat BNPL like other debts, affecting credit scores universally. This is something to keep an eye on as buy now pay later credit starts to become more popular.

Safety Concerns with Buy Now, Pay Later

While BNPL offers flexibility, any form of debt carries risks. Unforeseen circumstances preventing repayment may result in late fees and, subsequently, adverse effects on credit scores. It's crucial to note that the BNPL market in general remains unregulated and is not overseen by the Financial Conduct Authority as other forms of credit are. There are proposals to bring this market under their control, this is unlikely to happen until 2024. Until then, the best advice is to approach this style of credit with care, and never to take on more than you can afford to pay back.