In recent years, a new form of credit has appeared that’s used by millions of people every year.

Buy now, pay later deals are a way to pay for things in chunks, often without interest, allowing you to spend money without using traditional loans.

But my postbag is currently filled with enquiries and complaints about these deals and what happens if you miss payments. Here’s my guide to how buy now, pay later (BNPL) credit works and your rights if things go wrong.

What is buy now, pay later credit?

BNPL works by giving you a short-term loan, with or without interest, so you can buy goods or services at the till when you don’t have the full balance to hand, or money is tight.

Retailers love BNPL credit and almost all of them have at least one lender offering the credit at their online checkouts. That’s because these loans allow people to buy more than they can afford with just a few clicks.

The credit deals generally fall into the following categories:

Try before you buy

This is where you have a short period of time – usually 30 days but sometimes as low as 14 days – to try goods before committing to buy them. Of course, you can’t pop on a nice frock, hit the disco and send it back, no matter what you might read on social media. These deals allow you to try things on, check goods out and see if they work for you before committing to buy. However, if you don’t return the goods on time, you could find you’ve bought them. Bear in mind the 14 days just mirrors your existing online shopping rights – it’s not the lender being generous!

Limited instalments

The most well-known form of BNPL deal works by letting you pay in a limited number of instalments interest-free – usually in three payments. This means you can buy things up front that you may not have the money for in full at point of purchase. However, you have committed to buy.

Credit agreements

These deals are closer to the older credit deals in that you pay in instalments over a longer period and pay interest. This isn’t as high as some retailers charged in the past – it’s usually less than credit card interest, for example – but is still higher than a standard bank loan.

What’s the problem?

No interest doesn’t seem that bad, does it? Well, what happens if you can’t pay?

This is where BNPL lenders get cagey.

While BNPL firms may not charge debt interest, loads of readers have reported that businesses are quick to pass on debts to debt collectors who have a whole range of penalties and pressure tactics they can apply – and they can register financial debts with credit reference agencies. Worryingly, this can happen for relatively small sums, reportedly even for under £100.

Some BNPL are now saying that they will include details of existing arrangements on your credit file – ostensibly to show to lenders that you are paying off your credit deal and improve your score. However, this might be counterproductive for some lenders if you have too many deals (or even one), as it suggests you don’t have much cash to play with.

Can I afford it?

The desire to treat yourself or friends and family can sometimes overrule logic. So if you’re thinking about using BNPL loans, then don’t click to buy at the till without taking a moment to consider a few things.

Make a basic budget and have a look at how much money you have left over each month when you’ve paid all the essentials. If that money isn’t enough to cover an emergency, like a car or fridge breaking down, you should avoid BNPL credit. That’s because you’re simply moving the problem further down the line – where more could go wrong.

If you’ve already taken out credit, don’t panic! There are free organisations like StepChange are there to help you if you are struggling to pay the bills.

Martyn James is a leading consumer rights campaigner, TV and radio broadcaster and journalist.

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