Buy now pay later in-store credit: pros and cons
Spreading the cost of a big purchase can be useful, but be aware of the dangers.
In-store credit, also known as buy now pay later, offers you the option to pay for items you buy in a shop in instalments. It can be offered interest free or with an interest charge, depending on what you’re buying and/or the shop.
It can be a good option for spreading out your repayments but it can also have its pitfalls.
Examples of in-store credit
Here are some typical examples of in-store credit:
- You buy a sofa from DFS costing £499 and pay for it interest free over four years at £10.39 a month.
- You buy a TV costing £500 from Comet. You put down a 10% deposit (£50) then pay off the rest (£450) over four years at £14.29 a month, with an APR (the annual interest and charges) of 24.9%.
- You open up a Next Directory account and buy three dresses costing a total of £100 using the account. If you don’t pay your balance in full by the date required, Next will add a ‘service charge’ (interest basically) of 25.9% to your account. If you pay some of the cost off, the service charge will be added onto the remainder.
The pros of in-store credit
- You can spread the cost of a purchase over a period of time, sometimes interest free, helping to make big purchases more manageable.
The cons of in-store credit
- If the credit isn’t interest free, the interest rate or service charge APR is often higher (typically 20%+) than on a credit card (typically 17-19%).
- If you miss a payment, you can be hit with high charges.
- There are often penalties for paying off the credit early.
Look out for the insurance hard sell
You might wonder why some retailers offer interest-free purchases. Many will try to offset it by offering you one or more insurances, for example payment protection insurance, which will cover your repayments if you fall ill, or damage insurance for a sofa.
These are generally expensive and come with lots of exclusions, so don’t be pressured into taking them out when you’re in the shop. Take the paperwork home and read it. If you are tempted, shop around to see if you can find the cover cheaper elsewhere.
Be sure you can afford it!
Before you sign on the dotted line, make sure you’re confident you can afford the monthly repayments. If the credit you’re taking out has high interest or service charges your bill could very quickly grow if you can’t keep up the repayments.
Under the Consumer Credit Act, you have a 14-day cooling-off period once you have agreed to in-store credit. So if you’re having any doubts about whether you can afford the repayments, this is the time to act on them.
Alternatives to in-store credit
At the risk of stating the obvious, if you want to buy a big item, you could save up for it by putting some money aside each month in an instant access saving account.
If you want to use credit and spread the cost, and you have a good credit rating, you could use a 0% purchases credit card, which offers an interest-free period so long as you pay off a minimum amount each month.
If you need to borrow a lot of money then a personal loan is likely to be much cheaper than in-store credit.
This is a classic lovemoney article