Buy Now, Pay Later and Its Hidden Costs

How they work

The purchase price is split into instalments, typically over a short period, with no interest if paid on schedule.

The provider pays the retailer immediately and collects from you.

Approval is usually instant with a light or no credit check, which is what makes it frictionless.

Where the cost appears

Late fees for missed instalments, which are fixed amounts and proportionally large on small purchases.

Referral to debt collection where instalments remain unpaid, with the consequences that follow.

Reporting to credit agencies, which several providers now do. Missed payments therefore affect borrowing capacity, which many users do not expect.

Longer plans that do carry interest, which are a different product presented in the same interface.

The accumulation problem

Individual plans are small, and several running simultaneously across different providers are not.

No single provider sees the total, and neither, typically, does the user, since the plans sit in different apps.

The instalments then land in the same week and the total exceeds what was expected.

The returns complication

Returning an item does not automatically cancel the payment plan. The retailer must notify the provider, and the timing frequently means instalments continue in the interim.

Disputes involve three parties, which makes them slower than a card chargeback.

Card purchases carry protections in many jurisdictions that deferred payment plans may not, which matters for expensive items and for retailers that fail.

Using it sensibly if you use it

Keep a single list of every active plan with amounts and dates, across all providers.

Set the payment date to just after payday rather than accepting the default.

Ask whether you would buy the item if you had to pay in full today. If not, the instalment structure is doing the persuading.

For anything expensive, consider whether a card offering purchase protection is the safer route.