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Before choosing a BNPL option, you should understand how it works and what to consider.
What happens if you don’t repay BNPL?
A BNPL agreement means you can shop for things and delay paying for them.
There are generally 3 ways of paying:
Deferred payment: there’s usually an interest-free period between 14 and 30 days. But if you fail to pay on time, it can become expensive due to late payment fees.
Pay in instalments: you pay back the amount you owe over several months in smaller chunks – sometimes called ‘slices’. Again, if you miss payments, you could be hit with late payment fees.
Pay on finance: this works the same way as a loan and a hard credit check will be done.
BNPL can appear to be a cheap way to borrow, but it might also encourage you to spend money when you might not otherwise have done.
So, before signing up, ask yourself these 4 questions:
When considering BNPL, check budgeting apps to see if you can afford the payments or use our online budget planner. If you have the HSBC UK Mobile Banking app, our Balance forecast feature shows how much you could have left each month once scheduled standing orders and Direct Debits are taken into account.
Read the BNPL terms and conditions carefully to understand any late payment fees you could be liable for.
It’s also a good idea to research different ways of borrowing money, such as 0% credit cards or overdrafts. You may already have a credit card that offers instalment plans on new spending – without the need for a new loan facility or credit check.
BNPL can be a useful way to spread the cost of a purchase – whether it’s over a few weeks, months or a year. If you were already planning to make the purchase, it can help break down the cost into more manageable instalments.
It’s also interest-free, so if you’re able to manage it well and you never miss a payment, it can be a free way to borrow money.
Any remaining instalments are automatically taken from your account at set dates – and missed payments can lead to:
You might not always remember a purchase made 2 or 3 months ago. You should receive reminders, but it’s a good idea to note down when your instalments are due. That will help you remember and make sure you have enough funds to pay on time. Otherwise, you risk having to pay a late fee.
In the UK, BNPL products are not currently regulated. For example, BNPL lenders don’t have to carry out such stringent affordability checks compared to credit card or loan providers. It’s up to you to limit what you borrow and make sure you can afford to pay it off.
At the moment, using BNPL means you’re not protected by Section 75 of the Consumer Credit Act. When you use a credit card, you get this protection for purchases over £100 if goods are faulty or not delivered. You can’t complain about a BNPL product to the Financial Ombudsman either.
However, the UK government has announced plans to strengthen rules on BNPL services and proposed to bring BNPL companies under supervision of the Financial Conduct Authority (FCA).
If you’re unable to repay what you’ve borrowed, you’ll owe the BNPL company and may be charged a fee, interest or both, depending on the BNPL contract.
If you think you’re going to miss a payment, speak to your BNPL provider before the payment is due as they may be able to help.
Details of any short-term BNPL transactions may be included on your credit report – it’s the same sort of information that’s listed by other lenders. If you miss a payment, it could affect your credit score.
Explore: How to check your credit report
People don’t always take as much care signing up for BNPL as they would if they were applying for a credit card or loan.
Most purchases are for relatively low-cost items. But if you’re not careful, you might end up with multiple payments you struggle to afford unless you’ve budgeted properly.
If you sign up for a BNPL agreement, treat it like any other debt and never borrow more than you can afford to pay back.
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