The buy now, pay later model is a popular payment option in e-commerce. It offers advantages to both customers and merchants. We explain here exactly how this model works and what you need to pay attention to so that you don't experience any unpleasant surprises.
The "buy now, pay later" concept is very simple: a customer orders goods, for example, in an online shop and selects the payment option "buy now, pay later". Depending on which conditions apply, the invoice amount is not collected from the customer immediately, but at a later date.
The exact time is specified in the terms and conditions of the payment provider. Shops that offer this payment option usually use solutions from third-party providers that specialise in payment methods. The customer therefore concludes a contract with both the merchant and the payment service provider through which the payment is processed via "buy now, pay later".
Payment service providers for whom buy now, pay later is a business model are, for example, Klarna and Afterpay. They conclude contracts with companies that want to offer buy now, pay later as a payment option and receive a commission from them every time a customer of the company uses this payment option.
For customers, the buy now, pay later concept is very practical because they can order goods and only have to pay for them at a later date - and only if they want to keep the ordered goods. For this reason, the buy now, pay later method is particularly popular in e-commerce.
This concept also has advantages for merchants, because this attractive payment option allows them to quickly gain new customers, which makes up for the commission payments to the payment service provider.
However, there can also be disadvantages for customers who use buy now, pay later. Especially if you do not have an overview of your current account balance and your future cash. It can then happen that you cannot pay back the amount owed to the payment provider at the agreed time. Penalty payments or debt collection proceedings may follow. In addition, the credit score is negatively affected.
Customers who do not have an overview sometimes order by buy now, pay later because it is easy and convenient. The fact that no amount is immediately debited from the account may tempt customers to order more than they can afford. It is therefore important to always have an overview of one's financial situation so that one does not accumulate a mountain of debt.
Most payment service providers that offer buy now, pay later only carry out a soft credit check, as these "mini-credits" are not regulated by law. So in the vast majority of cases, the providers do not know whether a customer has enough money available to make the payment at the scheduled time.
This soft credit check does not affect the client's credit score. It only has a negative effect on the credit score if the customer cannot make the payment at the agreed time. If it is foreseeable that there will not be enough money available, the payment provider should be contacted as soon as possible and a solution sought together so that the credit score is not negatively affected.
It is possible to use buy now, pay later even if you have a bad credit score. The reason for this is that the payment providers only carry out a soft credit check because the type of credit they issue is not subject to legal regulations.
What at first appears to be an advantage can, however, be a disadvantage for the customer: If there is already a bad credit, it means that the customer has cash problems and the risk is high that there is not enough money in his account for payment. This can lead to the customer's credit score becoming even worse.
For people who already have a bad credit score, it is therefore advisable to repay current loans first and not take out new ones, because the "buy now, pay later" model is nothing more than a loan.
There are several companies that offer the buy now, pay later payment model. Usually, these providers also have apps where customers can keep track of all their payments and make settings.
Many providers, including the market leader Klarna, offer their customers different payment models: An amount can be debited from the customer's account with a one- time payment at a certain time, or several partial amounts can be debited at different times. The latter option is particularly interesting if the invoice amount is very high.
Depending on which buy now, pay later provider you sign a contract with and which payment option you choose, the conditions will vary. Before signing the contract, it is therefore advisable to look at the conditions and make a note of the date on which the payment or payments will be collected and whether interest payments will be due.