Buy Now, Pay Later (BNPL) services like Klarna, Clearpay, and PayPal Credit are becoming increasingly popular, offering an easy way to spread the cost of purchases over several weeks or months. At first glance, BNPL seems like the perfect solution for larger or non-essential purchases. But is it as simple as it sounds? Let’s dive into the pros and cons of BNPL and explore why a credit union might be a better way to manage your money.
What is Buy Now, Pay Later?
BNPL lets you divide the cost of an item into smaller payments, typically without paying interest. It’s quick to set up and easy to use via apps linked to your bank account or card. With no hard credit checks, approvals are easier than with other forms of credit, and your credit score won’t be affected unless you miss payments. This convenience makes BNPL attractive, especially for spreading the cost of larger purchases. However, as with any form of credit, it’s essential to understand the potential pitfalls.
The Pros of BNPL
- Convenience: Simple to set up and use through popular apps.
- Cost spreading: Helps break down larger purchases into manageable chunks.
- No interest: Typically, you won’t pay any interest.
- Quick approval: Easier to qualify for compared to traditional credit options.
- Fixed payments: You’ll know exactly what you owe and when payments are due.
The Cons of BNPL
- Overspending risk: It’s easy to lose track of spending and rely on BNPL for everyday items.
- Budgeting challenges: Multiple payment dates can disrupt monthly budgeting.
- Late fees & credit impact: Missed payments may lead to fees and hurt your credit score.
- No affordability checks: Lenders don’t assess whether you can afford repayments.
- No credit building: Unlike other forms of credit, BNPL won’t help improve your credit history.
What we’ve seen here at The Money Co-op
Recently, we’ve noticed an increase in BNPL use among our members. While it can work well when used sparingly for occasional larger purchases, we’ve seen cases where it’s become a regular habit.
Some members find themselves juggling multiple BNPL repayments throughout the month, making it difficult to budget and manage other essential payments like rent, utilities, or even food. This reliance can lead to financial strain, with BNPL becoming a quick fix rather than a solution.
If you find yourself in this situation, don’t worry – there are ways to take control.
A smarter alternative: how we can help
At The Money Co-op, we believe in money-positive solutions, and ways to budget without the drawbacks.
Instead of turning to BNPL, we’d urge members to consider these alternatives:
- Save a little each month: Opening a savings account with us allows you to build a financial buffer for emergencies or bigger purchases.
- Plan ahead: Use our MoneyHelper Budget Planner and Savings Calculator to organise your finances and prepare for upcoming expenses.
- Better ways to borrow: We offer ethical, low-cost loans with fixed repayment schedules that suit your budget. Plus, borrowing with us can help improve your credit score. (link to Credit Score blog)
- Financial support: If you’re already struggling with BNPL repayments, talk to us. We can help you explore ways to manage your debt and get back on track.
Take control of your money
BNPL can seem like an easy solution, but it’s essential to weigh the pros and cons carefully.
If you’re struggling to manage multiple repayments or feel BNPL has become a habit, we’re here to help. The Money Co-op offers ethical financial solutions designed to make life easier, not harder. Let’s work together to take control of your finances and create a brighter financial future.
Ready to make a change? Explore our savings and loan options or get in touch for personalised support. We’re here to help you achieve financial freedom.
