Buy Now Pay Later

Buy Now Pay Later (BNPL) is a type of credit agreement offered by a range of businesses when shopping online and in-store. BNPL credit allows you to buy goods or services and to spread the cost over a number of months or years.

The business (the shop you are buying from) and the BNPL provider are usually different companies, so while you may buy the goods from the business, you are also entering into a separate contract to pay for the goods with the BNPL credit provider. BNPL can often appear as the default payment option when buying online, so be careful not to select this option if you intended to pay by another method, for example with a debit or credit card.

Up until recently, BNPL credit was mainly used to buy goods such as kitchen appliances, furniture, televisions etc. and is better known as ‘in-store credit’. Now many businesses have started to offer consumers the option to pay for smaller goods such as clothing and footwear using BNPL credit.

How it works

BNPL credit agreements allow you buy goods on credit and pay for them later. For lower cost goods (generally less than €500), one payment option offered is regular interest-free instalments, for example fortnightly or monthly, over a period of between three and six months. Another option is to make one interest-free repayment, typically within 14 or 30 days from date of purchase. The payment options available for BNPL credit will be different depending on the provider.

For goods that cost €500 or more, you can usually spread the cost over a longer period of time – from about six to 36 months. This will require a credit check. You may be charged interest on these types of BNPL. Some of the providers of BNPL credit are regulated moneylenders who loan money at higher interest rates than those available through personal loans from banks or building societies.

Another growing trend for BNPL is the ‘try now pay later’ option. This allows you to order goods such as clothing and footwear, try them on at home and then only pay for the items that you want to keep. If you choose this option, you should make sure that any items you don’t want are returned within the return period outlined to avoid paying for goods that you don’t want to keep. It is up to you to send the goods back to the business you bought them from within the timeframe set out, for example 14 or 30 days. So do not delay if you intend to return the goods, and get proof of postage, as there is always a risk of a delay or goods going missing.

Top Tips to Remember

  • BNPL arrangements are a form of credit.
  • BNPL can often appear as the default payment option when buying online, so be careful not to select this option if you intended to pay outright by another method e.g. with a debit or credit card. Missed payments may impact on your credit rating.
  • Outstanding debt under a BNPL can be referred to a debt collection agency who will pursue you for the debt.
  • Know how much the late fees are.
  • Keep track of how much you owe.
  • Keep track of your repayment dates, especially if you have bought a number of items using BNPL.
  • Know how many different BNPL credit agreements you have.

Fees and charges

Fees and charges will vary from one provider to another and depend on the payment method you chose. This information will be set out in the T&Cs of the BNPL agreement so it is very important to read them. Some providers will charge no interest, even on late payments, but may stop you from making any further purchases using their BNPL credit. Other providers will charge late fees, which can vary in amounts and should be set out in the BNPL credit agreement.

Examples
The late fee charged may depend on the value of your purchase:

Example 1:
You buy a pair of shoes costing €20 but miss the payment. You are then charged a late fee of €5 (for orders under €25).

Example 2:
You buy a more expensive pair of shoes that cost €150 but miss the payment. You are then charged a late fee capped at 20% of the original order or €35, whichever is less. So, in this example you would pay the additional fee of €30, as 20% of €150 is €30. If, however the shoes cost €200 and you had a late payment, then you would be charged an additional €35 as that’s the lesser amount, as 20% of €200 would be €40.

The examples above are for illustration purposes only – actual late payment fees will vary depending on the BNPL provider.

If you get into difficulty and your debt remains unpaid under a BNPL credit agreement, then it can be passed to a debt collection agency who will pursue you for the debt.

Regulation

As of 16 May 2022, BNPL providers need to be authorised by the Central Bank of Ireland and are subject to the Consumer Protection Code. This means that they will have to check that you can afford BNPL credit and if it is suitable for you. The new laws also cap the interest rate BNPL providers can charge consumers at 23% APR (unless provided by Moneylenders). In addition, you are able to complain to the Financial Services and Pensions Ombudsman if you cannot resolve an issue with a BNPL provider.

Credit checks

Any credit agreement that is €500 or more is reported to the Central Credit Register (CCR) by the BNPL provider. If you enter into a BNPL agreement for an amount greater than €500, your loan will be visible to other lenders. Therefore, any missed payments on your BNPL agreement could impact your credit history and your ability to get a loan or other types of credit in the future.

For amounts lower than €500, many BNPL providers will perform a soft credit check. This means checking that basic details you provide (such as your name and address) are correct, but this check will not leave a visible footprint on the CCR or affect your credit score. The BNPL provider will decide whether to offer you credit based on the soft credit check and your ongoing relationship with them.

Pros and cons of BNPL

Pros

  • BNPL providers are fully integrated within an online store’s checkout which makes the buying process easy.
  • Setting up a BNPL account is straightforward.
  • BNPL can allow you to buy items now while you wait for your wages to be paid.
  • It offers alternative access to credit and can require less stringent credit checks than traditional loans.
  • Most BNPL providers don’t charge any interest on the amount you borrow once you pay within the timeframe set out in the T&Cs.
  • If used correctly this form of short-term credit can be less expensive than credit cards.

Cons

  • It may encourage you to impulse buy. Could you buy the item using savings instead?
  • You could be spending money that you don’t currently have or are taking out credit without having planned to.
  • If you miss a payment you may be charged a late payment fee, which will increase the cost of what you bought.
  • If you pay interest you are paying more for the goods than if you bought it outright.
  • Missed payments may impact on your credit rating, which can impact on your ability to get loans or other credit in the future.

Last updated on 15 June 2022