Buy now, pay later – is it a good idea?

Family on a sofa

Family on a sofaWhen finances are tight, finding enough cash to pay for things in full could be a challenge. Buy now, pay later schemes will enable you to enjoy your new purchases while spreading the payments out over a longer period of time, but are they the best option for you?

Buying something on hire purchase has its advantages and disadvantages so take some time to research whether or not such a scheme will suit your financial situation.

If you can afford the repayments comfortably, then they could be a good option, allowing you to enjoy new household items without having to wait. However, if the repayments are going to put pressure on an already tight budget, look at other options instead. That new leather lounge suite isn’t worth placing you in any financial difficulty.

Set up a direct debit

If you feel confident that you will be able to meet the repayments, set up a direct debit from your bank account so the payment comes out before you have a chance to spend it on anything else. This will help to ensure you don’t miss any payments.

Read the fine print

If you sign up to a buy now, pay later scheme you are signing a contract with the retailer so make sure you read the fine print. This contract is a legal document, so treat it as you would any other. Understand what you are signing, what is expected of you and, most importantly, what your rights are as a consumer.

What is the real cost?

The advantage of buy now, pay later schemes is that you can spread the payments out over time. This allows you to factor the extra cost into your weekly or monthly budget, rather than having to come up with a large amount of money in one go.

However, there can be hidden costs. Make sure your contract is interest-free and be aware of any increase in payments should you take longer than the specified time to pay off the full amount.

Protect your credit rating

Before you sign up to a buy now, pay later scheme, make sure you can afford the repayments, because if you can’t it could affect your credit rating. Although the payments are spread over 12-18 months (or longer), you will be penalised if you miss a monthly payment.

Check out Directgov for more advice on the pros and cons of hire purchase schemes.