The option to buy an item you need now, without having to pay the full amount until later can come in handy. But how exactly do buy now, pay later (‘BNPL’) methods work?
How it works
Buy now, pay later payment services such as Tamara, Spotii, Telr, and Tabby allow you to do just that: buy something now and pay for it later.
You usually need to make a minimum payment for the item you buy when you shop online or at a store, then pay the rest of the purchase off through instalments.
Depending on the service provider, you may be given the option to split the payment over 3, 4 or 6 instalments. Some providers may also require you to pay around 25% of the total order price upfront and then split the remainder payment over time.
You’re charged no interest for using BNPL but could be charged late fees if you miss a payment. Some providers charge monthly account fees and payment processing fees (look at the terms before signing up).
What is it useful for?
Buy now, pay later services give you the flexibility to split your purchases into instalments to help manage your expenses. It can be useful for people who have uneven cash flow, such as freelance or contract workers, and those who may need to smooth out their expenses. It can also be helpful if you aren’t able to make the whole purchase in one go.
You may find you need an item right away that you don’t have time to save for. For example, your fridge breaks down and you don’t have enough in your rainy day fund for a new one. The fact you will pay no interest for using BNPL can make this a convenient way to pay for this unexpected big-ticket purchase.
What you need to know about it
1. Think about the cost first
You need to be able to afford the item you’re buying not only now… but in the future. It’s easy to be optimistic about buy now, pay later purchases, particularly when the price of the instalment seems small compared to the overall cost of the item.
Before you make a purchase, make sure you’ve accounted for essentials such as your bills and rent or mortgage payments, so you don’t spend money that should go to your financial obligations.
2. Make sure you can afford it in the future
Find out when the next payments are due so you can account for this in your budget and allocate money for the next payment. Many providers automatically deduct the payment from your account, so make sure you know which account you made the purchase from.
We’d suggest setting a reminder before the payment due date to make sure you have the money in your account and avoid late payment fees.
3. Stay on track with your spending
While BNPL can make necessary items more affordable by spreading out the payment over time, be careful not to become overcommitted by making too many purchases. You could find yourself juggling several payments on the go, each with a different due date that you could forget about or realise you’re not able to afford.
If you find it easy to spend impulsively, be careful – as with many cashless payments, buy now, pay later options are often so easy to use that you could pay for something without stopping to think.
4. Understand the impact on your credit score
Be sure not to overstretch yourself financially or get into debt through BNPL. Some payment programmes might report negative activity to credit reporting agencies (like SIMAH in Saudi Arabia) which could affect your ability to obtain credit in the future.