Credit Score Basics > How does BNPL (buy now pay later) work?

How does BNPL (buy now pay later) work?

Wollit Team2 minute read · Updated 15th September 2024

Buy Now Pay Later (BNPL) is a new way to pay for things, especially online. It allows you to buy something now and pay for it later, often in small, easy-to-manage payments.

This is different from using a credit card, where you pay interest on the money you borrow. Here is how it works, and also how it can impact your credit score.

How does BNPL work?

Using BNPL is simple:

You shop online and add items to your cart.
At checkout, you choose the BNPL option as your payment method.
The BNPL company checks if you can make the payments. Most of the time this means running a soft check, which doesn't affect your credit score.
If approved, you get a payment plan with due dates and also a few fees.
The BNPL company pays the store right away, and you pay them back over time, usually every two weeks or once a month. If you pay late, you may have to pay a fee.

Which are the most popular BPNL companies in the UK?

Some of the most well-known BNPL companies in the UK are:

Klarna: Offers payment in 3 installments or 30 days later;
Clearpay: Lets you split your purchase into 4 payments, due every 2 weeks;
Laybuy: Which has actually become bankrupt recently;
Zilch: Provides a virtual card for BNPL purchases, with payments over 6 weeks.

What are the pros and cons of BPNL?

Buy Now Pay Later plans have a few obvious advantages:

You can get things right away without paying for everything at once. This is the main one.
Many BNPL options are interest-free, so you only pay what you owe.
You can choose payment terms that fit your budget.

However, the risks are also very real:

It's easy to overspend and get into debt if you're not careful.
Late payments can lead to fees and sometimes can even hurt your credit score.
BNPL has less consumer protection than credit cards if there are issues with your purchase.

BNPL and your credit score

BNPL can affect your credit score in a few ways:

Initial credit checks are usually "soft" and don't impact your score.
Missed payments may be reported to credit bureaus, leading to a "hard" credit check that lowers your score. This really depends on which BNPL provider you use – some report your missed payments, some don’t.
Frequent BNPL use can increase your debt. This doesn’t affect your score, but it can be an issue when applying for loans, as lenders will consider this when calculating how much you can afford to repay.
Finally, your BNPL repayments cannot build your credit history and credit score, unlike a more traditional credit card. You’re basically not getting any credit history benefits.

However, credit cards are not ideal credit-building tools either. Building your credit history with a credit card requires you to first buy things on debt and then repay them as soon as possible.

A better alternative is a specialised credit-building subscription like Wollit.

With Wollit, you only need to pay a fixed monthly subscription. Wollit then reports this subscription as a loan repayment to the credit reference agencies.

This directly builds your credit history and improves your credit score – while keeping you safe from high APR charges, maxed-out credit limits, or the risk of more debt.

More importantly, as your credit score increases, you’ll eventually become eligible for credit cards that give you much better shopping options (and even rewards and cashback) than BNPL options.