Buy now, pay later is credit, and it is starting to show

What follows is an argument about buy now pay later, and about where the received version of it stops being true.

It is borrowing, whatever the checkout calls it

Splitting a payment over instalments is credit, even when it is interest free and presented as a payment option. The absence of interest does not remove the obligation, the late fees or the consequences of default.

Framing at the point of sale deliberately reduces the sense that a borrowing decision is being made. An instalment option pre-selected at checkout, or offered only after the card details are entered, is a choice about when the decision happens rather than a neutral list of payment methods.

The accumulation problem

Individual plans are small, which makes each decision feel trivial and makes the total easy to lose track of. Several concurrent plans across different providers produce a monthly commitment nobody planned. Listing every active plan in one place is usually a sobering and useful exercise.

For most people, instalments are taken automatically on dates each provider sets independently, so several plans can land in the same week and cause a failed payment on an amount that was individually affordable.

Reporting is increasing

Providers increasingly report to credit reference agencies, so both good and poor repayment can appear on a file. Missed payments and referrals to collections can affect future lending decisions. The assumption that these products are invisible to lenders is becoming outdated.

What is reported varies by provider and by country, and some pass on arrears without recording the account at all, so repaying well may build nothing while repaying badly still counts.

Affordability checks are often light

Approval is frequently instant with minimal assessment, which is convenient and is also the mechanism by which people over-commit. Regulators in several jurisdictions have moved to bring these products under consumer credit rules requiring proper checks. Where that has happened, approval has become slower and the protections stronger.

A light check also means the provider knows little about your other commitments, so approval carries no implication that the payments fit alongside everything else you owe.

Consumer protections differ

Rights around faulty goods, refunds and chargebacks can be weaker than with a credit card in some jurisdictions. Returning an item does not always cancel the payment plan automatically. For expensive purchases, the additional protection of a card can be worth more than the deferral.

Where a plan is funded from a credit card, both sets of terms run at once: card interest starts under its own rules while the instalments continue under the provider's.

If a plan starts going wrong

Contact the provider before a payment fails rather than after, because hardship processes exist at most of them and are far easier to invoke ahead of arrears than during collections. Cancelling the card the payments come from stops the debit and not the debt, and usually adds fees on top of it. A referral to a collections agency does not change what is owed, and the agency holds no powers the original creditor did not; the debt can still be disputed, and evidence of a return or a fault still counts.

Free non-profit debt advice covers these products like any other credit, and there is no threshold of seriousness to reach before using it.

The takeaway

List every active plan in one place. The total is usually larger than the impression.

Pick the one that costs you least, and let the rest wait.