Monthly instalments, pay later and longer-term plans: which payment method is best?

Guest Author

Here, we look at Buy Now, Pay Later vs longer-term plans, working out which payment method is best for you.

Key Highlights:

  • Nowadays we’re faced with a plethora of payment options at the checkout
  • Buy Now, Pay Later (BNPL) is becoming increasingly popular – accounting for £4 out of every £100 spent in the UK
  • BNPL suits smaller-ticket items, with shorter repayment terms, but isn’t regulated by the Financial Conduct Authority
  • Longer repayment terms suit big-ticket items, as the cost can be spread out across more months
  • DivideBuy makes sure consumers are informed and in control of their finances, making products more accessible in the current economic climate

 

Alternative payment methods are becoming the norm for online shoppers

Press the checkout button, add your card details and address, receive your parcel. This used to be the standard process we all used when online shopping. Nowadays, however, there’s a lot more to consider at the checkout. There’s the option for discount codes, multi-buy savings and even how we pay for items.

Alternative payment methods are becoming the norm for online shoppers, with most big retailers offering multiple payment methods at the checkout point. We can see methods like Buy Now, Pay Later (BNPL) becoming increasingly popular – making up for £4 out of every £100 spent in the UK. As the market becomes increasingly cluttered with a seemingly endless list of BNPL providers, it can be confusing to know which payment method is best.

So, we’re here to answer: what is the best online payment method for you?

 

Buy Now, Pay Later

Most of us have heard of BNPL schemes. They allow us to receive an item immediately, without having to pay the full price upfront. This can be very useful for some – giving consumers access to much-needed items, even if they don’t have the full amount at the point of purchase.

 The schemes differ from provider to provider, each company varying their repayment schemes. Generally, they cover smaller scale purchases –– clothing, jewellery or a new coffee machine, for example – that can be repaid over short-term instalments, often up to three months, but can go on for longer.

 Dependent on the provider you can:

  • Pay the full amount 30 days after purchase
  • Pay the full amount in pre-determined monthly sums – usually 1-6 months

Here it’s important to distinguish between interest free and interest bearing credit.

  • Interest free credit means you can borrow a certain amount of money over a set period of time, with no interest charged, like the longer-term payment plans offered by us at DivideBuy.
  •  Interest bearing credit sits at the opposite end of the spectrum, referring to credit which incurs interest.

In other words, if you buy a product for £1,000 using interest bearing credit, and the interest rate is set at 5%, you’ll pay £50 extra in interest: £1,000 x 5%.

 

What are the advantages of Buy Now, Pay Later?

For some, BNPL is a hassle-free way to receive a product without needing the money upfront, knowing you will pay back it back in the future. This can be via monthly instalments or simply the full lump sum when you’ve got the funds.

We can also see more and more consumers using BNPL schemes to ‘try before you buy.’ As the money doesn’t come out of your account straight away, consumers are starting to order multiple products to see which they prefer in person, sending back those they don’t want to keep before the repayment date is due. BNPL is essentially a way for consumers to get the things they want immediately, without needing the money upfront. It is generally used for smaller purchases and with shorter repayment terms.

 

What are the disadvantages of Buy Now, Pay Later?

While BNPL may initially seem like a convenient way to pay for purchases, missing or delayed payments can result in late fees and a damaged credit score. It’s important to consider if the monthly instalments are affordable and realistic before you enter into an agreement.

BNPL schemes are also generally suited for smaller ticket items, where a repayment plan of three months is sufficient time for you to pay back the money. If you’re interested in buying a new sofa or garden furniture, however, these shorter payment plans may not be enough time to spread out the cost. If an item costs £1,000 for example, splitting that into ten £100 payments is probably easier than two £500 instalments.

 Finally, there is currently no requirement for BNPL providers to adhere to the rules set out by the Financial Conduct Authority (FCA.) This means that these providers don’t have to undertake credit checks when taking on new customers, meaning their payment plans could be unrealistic or unfair to their customers. BNPL providers are not currently regulated, although following the Government’s Woolard Review last year seeking views on the creation of a “proportionate approach” to such regulation, that all looks set to change.

 

Longer-term payment plans

Longer term payment plans can be used to purchase ‘big-ticket’ items – picture a new hot tub or oven. They are suited for large order values, where a three-month payment plan is too short a time to repay the amount of an item. Imagine you’re doing up the garden and need to buy new garden furniture, would you rather split the total cost over twelve or three months?

 

What is the best online payment method?

In short: it depends.

If you’re looking for a short-term plan to pay for a low-value item, then BNPL may be your best bet. Do be careful though, as the provider you use may not carry out assessments into your creditworthiness before offering you a package, leading to unrealistic monthly instalments.

If you’re looking to finance a larger-value item, then a longer-term payment plan would be more suitable. This payment method means you can immediately receive a new fridge or washing machine, for example, and spread this cost over a year, meaning you don’t break the bank with each instalment.  

 

DivideBuy’s finance solution

Despite not being regulated by the FCA, we pride ourselves on being a responsible lender, making sure everyone is well-informed before using our interest free credit service.

When you apply to use our service, we perform a Soft Search credit check that doesn’t affect your credit score. This not only ensures that our service is the right option for you, but also allows us to design a bespoke repayment package that suits your finances and needs. We also make sure you’re in control of your finances. Want to choose the length of your repayment term? No problem. Want to make early payments, without extra charges? Sure.

 At DivideBuy, we want to make paying for a product as simple and accessible as possible, making life more affordable in the current economic climate.

 If you’ve got any questions, visit our FAQs page or get in touch with our customer service team today.

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