Some leading retailers who offer ‘buy now, pay later’ finance deals could disproportionately punish shoppers for minor changes in repayment behaviour, or for small mistakes in timing, Which? Money has found.
Managed well, the ‘buy now, pay later’ (BNPL) deals offered by mail-order companies can be an effective way to spread the cost of expensive items. But a slip-up could cost you dearly.
If you want to use credit for a big purchase, take a look at our guide to the best ways to borrow.
Beware of backdated interest
If you spend £350 on jewellery using Argos’ 12-month BNPL deal, for example, you’ll be charged no interest at all if you repay in full by day 365.
However, if you repay in full just one day later, interest at 29.9% on the whole balance will be backdated to the date of purchase. This amounts to an interest charge of more than £100. Freemans also backdates interest to the date of delivery, charging 34.9% APR if you don’t pay off the full balance within the BNPL period.
Littlewoods offers a similar deal, but charges even more at 36.9%. Worse still, the retailer backdates interest to the date of your order, even if the item isn’t available or isn’t delivered until a later date.
What happens at the end of the 0% deal?
In a promotional video on its website, Littlewoods asks viewers, ‘why pay upfront when you can stay in control of your finances?’ You don’t have to make any payments during the deal period but, as many customers are unlikely to make voluntary payments during this time, they’ll need to pay the whole amount in a single instalment a year later to avoid paying interest.
However, if customers are unable to repay in one go, they’ll be left with the expensive interest-charging option. Despite this, the representative examples on the Littlewoods website show an interest rate of 0%.
Interest rates not revealed upfront
K&Co.com and Very.co.uk, which like Littlewoods are part of the Shop Direct group, also charge interest from the date you place your order but, disappointingly, we couldn’t find the revert-to APR anywhere on these sites. Instead, the terms and conditions from K&Co state that you’ll be told your interest rate ‘upon successful account application’.
If you decide to use a ‘buy now, pay later’ deal for a big purchase, consider setting aside a certain amount each month and placing it in a Best Rate savings account. This should enable you to cover the full amount due at the end of the interest-free period – meaning you’ll avoid excessive interest charges.