Is Buy Now Pay Later a bad thing?

Is buy now pay later a bad thing or something that is better than being in credit card debt? As someone who has used both services I am in two minds about it. I personally believe it is a bad thing for people who are not financially literate and a good scheme for those who can play the financial game. I this post, I aim to share the pros and cons as well as my own personal experience with the ‘buy now pay later’ scheme that has hit the retail industry over the last couple of years.

Ever since I became consumer debt free many moons ago, I have vowed never to go back into consumer debt again. Being in debt robs you of the ability to live the now and plan for the future, it literally robs you of your future because instead of investing money into assets that benefit your future – you are throwing money onto debt and going nowhere fast. So, when I ask the question – is buy now pay later a bad thing? My first response is yes, its a bad thing but let’s explore.

Disclaimer – I am not a financial advisor, all opinions shared in this post are my own unless indicated otherwise.

Is Buy Now Pay Later a Bad Thing?

Before we can accurately answer the question, ‘is buy now pay later a bad thing’ we need to first understand what this scheme is and why it has become so popular that even some online banks like Monzo has jumped on the bandwagon. This scheme has become so popularised that almost every retailer in the UK is offering the option of buying an items now and paying back later when it suits you. Majority of retailers are offering this scheme on almost any items and can pay back from as early as 3-months to as later as 12-months.

The buy now pay later or BNPL scheme has been packaged as a better alternative to credit cards and loans because it allows you to breakdown the repayments into instalments that suit you best and majority have little to no interest charged on repayment unless you miss a payment. Compared to most credit cards, the interests charged on BNPL is extremely low making it the best alternative for many people. As someone who has been in credit card debt before, I can attest to the atrocious amounts I have paid in interest alone but also on late payments which the lowest is/was £12.

Personal Experience with Buy Now Pay Later Scheme

In 2020 (need I say more), I became aware of the BNPL scheme and thought to myself, there is no way it was as good as advertised by Klarna. A few months later, I decided to purchase a Peloton bike and even though I had the money, I decided to test out the BNPL scheme and I choose Klarna. The bike was £1800 (excluding delivery fees), I choose to break the payment into 12-monthly instalments of £166 (including delivery fees).

After 4-months of making monthly payments, I got bored and decided to pay the full amount off. This part was slightly difficulty as it seemed they didn’t want me to pay it off early, I persisted with my calls and I was provided with bank details to pay Klarna off in full. There were no early repayment charges, the Klarna app was easy to navigate but made it a little too tempting to get back into another ‘Klarna loan’ if I so chose and I think that was the danger – if I wasn’t financially savvy I would have fallen into always buying things on BNPL.

Buy Now Pay Later vs Credit Cards

For many years after I became consumer debt free, I thought of credit cards as being ‘evil’ because the interest rates are absolutely ridiculous. I don’t get how ‘my bank is payment me 0.1% for saving my money with them but they charge me ‘20.74% in interest’ for using their money on a credit card. During the BNPL experiment, I decided to spend £900 on my £1000 limited credit card and thought for 3-months I would pay the minimum amount. I did not last more than a month because my first interest charge was £25.55 and I knew it was enough for me to clear the balance off ASAP.

Whilst I am not clear on how much it would cost me if I missed a payment on Klarna, I do know that you are given 30 additional days to bring the account to good standing before its sent to debt collectors. This obviously would impact your credit score badly but it is no different from credit card companies who often report your account to credit agencies on a monthly or 6-weekly basis.

Pros and Cons of Buy Now Pay Later

• Pro – allows you to spread the cost to suit your needs
• Con – builds mindset of always borrowing to buy things we want not essentially need
• Pro – better than a credit card
• Con – can impact your credit score negatively if you miss payments
• Pro – can help you become financially responsible through manageable repayment options
• Con – encourages overspending

Like I said at the beginning, I am in two minds about BNPL scheme but I believe if you are financially savvy, its not a bad alternative to use but then again, I live under the principle of ‘if you don’t have it, you don’t spend it‘. So I pause the question back to you, is buy now pay later a bad thing?