Is The 'Buy Now Pay Later' Service Safe For A Uni Student?
Buy now, pay later (BNPL) schemes are appealing to many students who are living on a budget.
Your student finances can be difficult to manage at times, juggling very different aspects of your life to ensure you work hard at university but also have enough money to enjoy your social life, pay your bills, buy your groceries, and have enough left over for the occasional treat.
If you’re looking at services such as BNPL, we don’t blame you. They’ve wormed their way into society and everyone seems to be using them. They can however come with a lingering financial worry and we’re here to clear that up for you! We’ve put together a short guide about BNPL and how to decide on whether to use it or not as a student.
The one thing you should always remember is that any financial service like a buy now, pay later scheme, can be used with success if you are careful and know that you can afford to make the repayments asked of you without putting yourself into financial difficult as a result. Always ask yourself would you have bought the item you are putting through BNPL if that was not a payment option. If the answer is no, maybe take a step back and refrain from making the purchase at this time.
What is a buy now, pay later scheme?
BNPL is a really simple idea. Instead of paying for goods there and then at the counter (or online if you are buying from a website), you can spread the cost over the course of a few weeks or even months. It doesn’t mean that you get to pay any less for the items you are buying, just that you have longer to pay for them in full.
This can be a great way to buy items that you want or need at a time where you might be worried about your cashflow. If you know that you can pay in full at the end of the month or the end of next week, it gives you breathing space to pay without worrying about the amount of money you have in your pocket or your bank account. For students, especially those living on a tight budget, buy now, pay later schemes appeal.
A look at Klarna
Klarna is probably the most well-known of all the BNPL companies and has linked with many different retailers for both in-store purchases and online. Processing payments on behalf of retailers was the first offering, but Klarna also offers a range of payment options to consumers:
1. Pay in 3 – This allows you to split your payment into three equal parts. You’ll pay a third of the full amount at the checkout with two further payments scheduled in 30 and 60 days.
2. Pay in 30 days – The second option allows for no payment to be made at the point of purchase, instead a grace period of 30 days is given before you must pay for the item in full.
3. Finance – Instead of paying within the next month or in split payments, you can also take the finance option, which offers credit and the chance to spread the cost over 6 to 36 months. This option includes an annual interest rate and a hard credit check to be accepted.
Klarna also offers the Klarna Card, giving you the chance to shop and have 30 days to pay. This is essentially a credit card, and with the Klarna Card in your wallet or purse you’ll always have that option to buy now, pay later, making it maybe a little bit too easy to purchase items when you visit a shop in person or online.
Is it safe to use buy now, pay later schemes?
When comparing with any other type of online bank transaction or payments provider, using Klarna or other types of buy now, pay later products are just as safe, with your data and personal information protected. One-time passcodes are also used in most cases to ensure that only you can make a purchase and agree to the repayment terms.
The impact of buy now, pay later on your credit score is another issue of safety though, and this is where things become interesting.
Are there benefits to using buy now, pay later schemes?
There are some benefits to using a buy now, pay later scheme, and if you manage the situation correctly then it shouldn’t cost you any more money than the price of the item you are buying.
· Free to use
One of the biggest reasons why students are drawn to BNPL is that the service is completely free to use, without added interest or fees (in the case of Klarna).
· Easy to plan ahead
Most repayments under BNPL are weekly, fortnightly, or monthly, so it is a simple process for you to plan and make sure you have the money to repay when you need to.
· In-store and online purchases
Klarna in particular, have led the way with BNPL schemes having direct links to retailers, allowing for purchases both in-store and online, making it easier for you to shop.
· Set credit limits
Every person has a set, unique credit limit of spending with their chosen BNPL service, in the same way as a credit card limit will differ based on your credit score and history.
· No hard credit check
It is unlikely that you’ll have a hard credit check against your name when using BNPL, making it easier to use the service.
What about the downside of BNPL?
The downsides to using buy now, pay later schemes are important to understand. It could save you from putting yourself in an undesirable position financially.
· No consumer protection
Section 75 consumer protection laws help to protect your purchases over £100 when using credit services, in the event of faulty goods or non-delivery. With Klarna and other BNPL, these rules do not apply.
· Late fees
If you miss a payment on your BNPL agreement you will most likely face late fees. Although Klarna doesn’t have late fees, Clearpay has a late fee of £6, Laybuy also has a £6 late fee, and PayPal a £12 late fee.
· Damage to your credit score
Even if you are using Klarna, you might suffer damage to your credit score for missing payments. A late payment could be noted on your credit file, hindering your future credit options.
· You spend more
Research has indicated that BNPL schemes promote extra spending on products. Even though as a consumer you know that you’ll end up paying the cost in front of you, it feels free at the time, something to worry about further down the road. This can lead to spending more than you would (or should) because you don’t have to pay there and then.
Is there more protection on the way for buy now, pay later customers?
The buy now, pay later sector is unregulated, making it a worry for anyone with concerns about using a BNPL service. This is set to change thankfully, with new buy now, pay later regulations coming into force that would mean providers of BNPL would have to carry out the same type of checks as other lenders do. This helps to ensure that the consumer can afford repayments and offers a greater level of protection.
We would never tell you what you should do, your life and your student finances are your own. What we would say though, is that it is always important to be very careful when it comes to your money. It is very easy to get into debt as a student and to see that spiral out of control into your adulthood and future life.
Student loans and that type of debt is one thing to manage, credit card debt and buy now, pay later schemes where you’ve missed payments and incurred penalty charges are another entirely.
As you can see here, there are some benefits to BNPL if you are very careful and have a repayment plan in place, but overall, we would advise against using these types of finance schemes if you have an alternative. Living on a budget is about learning how to make choices that will stand you in good stead for the rest of your life. If you can save up some money to buy those clothes you want, that Bluetooth speaker that’s going to enhance your music at home or those books you want to add to the pile next to your bed, it’ll feel so much sweeter when you get them.