Companies Best Buy Now Pay Later
Buy Now, Pay Later (BNPL) has become a popular way to borrow small amounts of money for a short period of time. Its success is due to its ease of use.
Brands such as Klarna, Clearpay and Laybuy are now common checkout options on many shopping websites, and even in-store as well. But if you have a choice, which one to choose and what should you pay attention to?
Our guide below covers:
What is Buy Now Pay Later?
Buy now, pay later, as the name suggests, is a way to spread the cost of your purchases. Buy something today, but pay for it over the next few weeks or months.
It’s popular because if you opt for short-term contracts of up to two months, BNPL is usually entirely free of interest or fees.
BNPL firms make money by taking a commission from the retailer. This means that they have nothing to charge customers.
The operation of BNPL means that it does not count as an ordinary credit agreement in the eyes of the law. As a result, the sector is currently unregulated. However, the government has announced its intention to introduce regulations, which are expected to come into force in 2023.
As it stands, BNPL lenders are not required to perform credit checks on their borrowers, and many do not. This means they may not show up on your credit report or affect your credit score.
However, some lenders, such as Laybuy, do “rigorous” credit checks. And these leave a “fingerprint” on your record and could affect your score, and ability to be accepted for a loan, if it is demonstrated that you have made several credit applications in a short period of time.
Keep in mind that without a full assessment of their suitability for a loan, BNPL borrowers could run the risk of incurring debts that they will not be able to repay on time.
And if you miss a payment with Clearpay or Laybuy, for example, there’s a £6 late fee to pay.
It is likely that once the industry is regulated, all BNPL suppliers will be required to carry out credit checks.
Read our guide here to find out if it’s worth taking out a loan to rebuild your credit history.
What are the best BNPL companies?
Each company has slight differences in how refunds work.
For example, Klarna – the largest BNPL provider – offers the possibility to:
- Pay the full amount 30 days after purchase
- Pay in three installments which are debited on the day of purchase then 30 and 60 days later
On the other hand, Laybuy allows you to pay in six instalments. The first is taken on the day of purchase and the other five are taken weekly.
Below we round up the best BNPL providers.
Best for: Customer service and the longest free refund period
Klarna topped our latest customer happiness survey – conducted by independent research firm Fairer Finance – with a score of 69%.
Its efficient customer service is appreciated by borrowers. And it remains one of the few providers to promise no late redemption fees or interest.
Klarna offers two main products: “Pay in 3” and “Pay in 30”.
- Payment in 3: allows you to split your purchase into three installments, the first being due on the day of the transaction and the second and third due 30 and 60 days later. That’s about as long as you’ll get from a free BNPL provider, although PayPal also offers 60 days on its Pay in 3 product.
- Pay in 30: Allows you to pay the full amount 30 days after purchase.
Klarna is also launching a new card, which can be used in any store.
Most Trusted BNPL Provider
New Zealand-based Laybuy won the title of most trusted brand in our latest Fairer Finance customer survey, and was only just behind rivals Klarna and Clearpay in the customer satisfaction stakes.
Unlike Klarna, it charges a fee if you miss a payment. But the fee is only £6 and the fee is capped at £24. Thus, you will not be charged more than four late fees for the same loan.
The Laybuy service offers the possibility of paying for your purchases in six monthly instalments, the first taken on the day of purchase.
When you apply, you will be subject to a rigorous credit check. This could impact your credit score.
Best for: Vet bills and dental bills
Openpay is an Australian company that currently only offers loans for vet and dental bills in the UK.
The length of the interest-free period depends on who you are buying from.
It charges a fee of £7.50 if you miss a payment (up to a maximum of £15).
The rising cost of living due to rising inflation, watch the video below for our top budgeting tips.
Is Buy Now, Pay Later safe?
Even though BNPL is unregulated, the leading companies in the market are large, respected companies that are already preparing for a regulated world.
However, BNPL does not offer the same consumer protections as credit cards, the other popular form of short-term credit.
If you make a purchase between £100 and £30,000 with a credit card you will have what is known as Section 75 protection. This means that the credit card company is liable for the same manner as the company from which you purchased the product or service in the event of a problem.
A similar scheme, known as a chargeback, can be used for debit card payments. But you may not be able to make a successful claim under Section 75 or a chargeback if you pay with BNPL.
Until the BNPL is regulated, you may also not be able to refer your complaint to the Financial Ombudsman Service. Learn more here about the difference between credit cards and buy now, pay later.
Some of the BNPL’s large suppliers, such as Klarna, have voluntarily registered under the jurisdiction of the ombudsman.
But for those who haven’t, it can be difficult to settle a complaint independently without going to court.
Finally, remember that BNPL is a credit agreement. And while it’s all too easy to get accepted for these and set one up, it’s important that you are confident in your ability to repay.
What are the benefits of BNPL?
In addition to often being free, BNPL is popular with many customers because they can try shopping online before buying.
Some BNPL providers do not charge you anything upfront. This allows you to receive your order before you have paid a penny.
This gives you time to try on a new item of clothing and send it back if necessary, without the money coming out of your bank.
Another reason BNPL is popular is that it doesn’t come with the commitment and temptation of a credit card or overdraft.
Once your purchase is refunded, the deal is closed and you have no long-term agreement to bind yourself to.
Are there any fees or charges?
Most BNPL providers charge no interest and only charge a fee if you miss a payment. However, some – like Klarna, PayPal, and Zilch – charge no fees even if you miss or are late in making a payment.
However, this does not mean that there are no consequences. Most businesses will start off fairly small, sending reminders via email and text.
But if you continue to not make your payments, you could be referred to a debt collection agency. And it could also be reported to credit reference agencies.
It should be noted that many companies in the BNPL sector offer longer term credit agreements. These are regulated and come with interest and fees, just like personal loans and ordinary overdrafts.
For example, if you want to buy a bike from Halfords, Klarna’s ‘Finance’ product offers the option of paying in installments over up to four years – at a fairly high interest rate of 18.9% APR. It will show up on your credit report like any other loan or credit card.
About our reviews
Independent research firm Fairer Finance surveyed 10,000 UK consumers in Spring 2022. Those who had used Buy Now, Pay Later were asked which company they had borrowed from and how satisfied they were with the service, as well as their trust in the brand. .