PayPal is to scrap late payment fees for buy now, pay later products around the world from 1 October 2021.
What is buy now, pay later?
Buy now, pay later (BNPL) services allow consumers to split payments into interest-free instalments, spreading the cost of their purchases across a longer period of time than a standard upfront charge.
The new payment method surged in popularity during the pandemic, as lockdown measures forced many retailers to operate online-only, and customers feeling the squeeze were able to distribute bills across a time period which worked for them.
Though BNPL services do not charge interest, missed payments can incur a hefty charge, and customers could slip into a pattern of debt quickly if they do not adhere to the terms.
You can read more about how buy now, pay later works and how to use it safely in our article "Everything you need to know about buy now, pay later".
Competition heats up
The move comes as providers compete to offer the best service for online shoppers, with rivals Clearpay and Klarna offering increasingly lenient terms.
PayPal’s Australian and German branches have already dropped late payment charges, but the latest announcement will see the firm scrap fees across the UK, US and France as well. Customers are currently charged a £6 fee for late payments, which can be charged up to two times for each debt. The late fees will continue until 1 October 2021. However, customers should be aware that late payments - while fee-free from October - could still have a negative impact on their credit score.
Klarna users opting for the ‘Pay in 30 days’ payment option may be eligible for a free 10-day extension to their debt, but late payments beyond this will result in users not being able to access the service again for future purchases, and the company warns that it “may use debt collection agencies to recover your outstanding balance”. Klarna also says that it reports missed and late payments to credit reference agencies, which could result in a negative mark on your credit score, and could hamper your ability to obtain credit in the future.
For Clearpay, an initial £6 blanket late fee will be charged for late payments under £24, plus an additional £6 if the outstanding debt remains unpaid 7 days after the due date. For orders over £24, users may be charged this £6 fee repeatedly until they repay, with a cap at whichever is the lowest of 25% of the original order cost or £36. As with Clearpay’s competitors, late payments could be factored into your credit score, so users should avoid falling into debt to keep their rating as high as possible.
More on buy now, pay later
The lack of interest and late payment charges can make BNPL services extremely attractive, but it’s important to remember that the purchases still need to be repaid and spreading the cost over several weeks does not make it any less expensive - it just means you have a little bit longer to pay it. And, ultimately, there is still a hard deadline that you cannot exceed without ending up in more debt than you bargained for.
Be sure to check out our guide to buy now, pay later to ensure you understand what you’re getting yourself into, or read our independent Klarna review to find out how suitable and safe it may be for you.