Interest-free payment plans, buyer beware!

You may be among those who have already used this service: some e-commerce websites have started offering customers the option to pay for their purchases in instalments, interest-free. This is called Buy Now Pay Later (BNPL).

It is a form of credit that allows online customers to pay for relatively low value purchases in a limited number of instalments (normally, three or four). BNPL is currently available for around 4 per cent of online purchases, but this trend is growing fast in many countries, including our own. While this service can be helpful, it should be used with caution.

What do I need to know?

1. Normally, Buy Now Pay Later is free of charge for customers if they pay instalments on time. However, it can become expensive in the case of late or missed instalment payments. Before opting into the instalment plan, it is advisable to read the terms and conditions carefully, in order to understand the consequences of late or missed payments.
2. As a normally interest-free, easily accessible form of credit, BNPL risks leading customers into multiple instalment purchases at the same time. Buyers should not run up debts they may be unable to repay in full.
3. At the moment, no specific BNPL regulation is in place. The applicable legislation and customer protection depend on the type of provider (bank, financial intermediary or other). It is essential to know what kind of intermediary is providing the instalment plan and ask them to sign a contract, as this has consequences for the kind of protection to which the customer is entitled. This should include the right to receive clear and accurate information on the characteristics, risks and costs of instalment plans, making it possible to compare different options easily.

For more information, see our new BNPL fact sheet.