Buy now, pay later can cost you a packet eventually

These deals may be tempting but they often have huge, hidden expenses, warns Chiara Cavaglieri

It is almost as if the credit crunch never happened. Walk down any high street, or flick through any TV channel and you are guaranteed to see an offer of buy now, pay later or interest-free credit for big purchases. Managed perfectly, some of these deals can be an acceptable way to spread the cost, but be warned: these credit agreements can have huge, hidden expenses.

Many leading mail-order companies offer "buy now, pay later" (BNPL) finance deals with no interest to pay and this can be an attractive option for anyone looking for a more flexible way to pay for goods. However, if you don't repay the entire amount in the specified time, you could face excessive charges.

For example, Argos offers a 12-month BNPL deal which charges no interest at all if you repay in full by day 365, but if you miss the deadline, you pay 29.9 per cent on the whole balance, backdated to the date of purchase. If you were to spend £350 on jewellery, that would equate to over £100 in interest, according to Which?.

The consumer organisation also found that Freemans backdates interest to the date of delivery, charging 34.9 per cent annual percentage rate (APR) if you don't pay off the full balance within the BNPL period.

Littlewoods charges even more at 36.9 per cent, but worse: it backdates interest to the date of your order, even if wasn't delivered until a later date. K& and Very, which are both part of the Shop Direct brand along with Littlewoods, also charge interest from the order date, but the revert-to APR is only revealed to shoppers "upon successful account application".

Gareth Shaw at Which? says: "Some 'buy now, pay later' deals may charge you interest on the whole balance even if you're just a single-day late in repaying, so always check the small print and repay on time to avoid hefty penalty fees."

Lenders should put all their charges in the terms and conditions but you need to be crystal clear in your own mind as to how these are applied. You may also be offered add-ons such as shopping insurance, or "life event plans" to cover your repayments if you are unable to work, but these can be comparatively expensive and difficult to claim on.

If you're buying a big-ticket item such as a car or furniture, you may be offered a hire purchase (HP) agreement instead. Typically, you put down a 10 per cent deposit and pay the rest in monthly instalments over one to five years with interest. This can work well if you are disciplined and put money aside each month, but look at charges as well as the APR because there may be administration fees at the beginning and the end of your arrangement.

Crucially, you must never lose sight of the fact that you do not actually own the goods until you have made all of the payments.

Forecourt finance in general can be complicated and the onus is on you to get to grips with the true cost of any agreement you make.

Lucy Burnford, founder of, says: "These plans can help you buy a car you could not afford to buy upfront but, when it comes to financing a car purchase, it's essential to read and actually understand the terms of the contract before signing anything. Boring as the small print is, it's crucial to know exactly what you're paying for."

Car dealers often use flat interest rates to make a loan look cheaper, because while an APR is charged on outstanding debt, a flat rate is charged on the original amount borrowed, which means that in the last year you still pay interest on the whole loan. As a very rough rule of thumb, an APR will be around double the flat rate.

There are pitfalls with personal contract purchases (PCP) too. Here, you are effectively hiring the car – with the option to return it, buy it for the agreed amount, or return it and make another deal – but the car's end value is decided at the outset.

David Black of Consumer Intelligence says: "PCPs are based on agreed mileages, and if you exceed that mileage there will typically be a fixed additional charge for each extra mile. If the car's not in good condition at the end of the agreement this could hit your pocket too as its resale value will be less. The finance agreement will be for an agreed term and it will generally be expensive if you want to terminate it early."

An unsecured loan is often a better option. If you have a decent credit rating you can get competitive rates of under 5 per cent APR if you're borrowing between £7,500 and £15,000.

Credit cards can catch you out too, so take the time to read the small print and if your credit-card company sends you a change of terms notice, don't ignore it.

Even leaving your card in a drawer could be an expensive mistake as some credit-card providers charge a fee if you don't use it regularly. These dormancy fees are relatively rare on new cards being issued but they may apply to existing cards and are more common on prepaid cards. Similarly, some store cards charge a "credit balance fee" for holding a positive balance. These cards already carry exorbitant interest rates, usually close to 30 per cent, but Santander-issued cards such as the Topshop and Debenhams store cards also whack you with a fee of up to £10 if you have a credit balance for three consecutive months.

Charlotte Nelson of says: "Try not be get sucked in by the discounts at the till as there are often better standard credit cards on the market. These cards not only have a lower rate of interest but they can even offer 0 per cent on introductory purchases for a fixed period and even cashback."

Avoid using a credit card for cash advances, which usually refers to ATM withdrawals but can also include transferring money into another account, gambling and betting transactions, traveller's cheques and foreign currency. Not only do you pay a separate, higher rate of interest (typically over 25 per cent), but you may also be charged interest from day one as well as a fee of around 3 per cent and foreign usage fees (around 2.99 per cent) to boot if you're using your card at an ATM abroad.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Life and Style
The new Windows 10 Start Menu
More than 90 years of car history are coming to an end with the abolition of the paper car-tax disc
newsThis and other facts you never knew about the paper circle - completely obsolete today
people'I’d rather have Fred and Rose West quote my characters on childcare'
Arts and Entertainment
There has been a boom in ticket sales for female comics, according to an industry survey
comedyFirst national survey reveals Britain’s comedic tastes
Arts and Entertainment
Hilary North's 'How My Life Has Changed', 2001
booksWell it was good enough for Ancient Egyptians and Picasso...
Kim Jong Un gives field guidance during his inspection of the Korean People's Army (KPA) Naval Unit 167
newsSouth Korean reports suggest rumours of a coup were unfounded
Bruce Chatwin's novel 'On the Black Hill' was set at The Vision Farm
travelOne of the finest one-day walks you could hope for - in Britain
Arts and Entertainment
Gay and OK: a scene from 'Pride'
filmsUS film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
Life and Style
Magic roundabouts: the gyratory system that has excited enthusiasts in Swindon
motoringJust who are the Roundabout Appreciation Society?
Arts and Entertainment
You could be in the Glastonbury crowd next summer if you follow our tips for bagging tickets this week
footballManchester City 1 Roma 1: Result leaves Premier League champions in danger of not progressing
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

    Trust Accountant - Kent

    NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

    Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

    £18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

    Law Costs

    Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

    Day In a Page

    Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

    The children orphaned by Ebola...

    ... then rejected by surviving relatives over fear of infection
    Pride: Are censors pandering to homophobia?

    Are censors pandering to homophobia?

    US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
    The magic of roundabouts

    Lords of the rings

    Just who are the Roundabout Appreciation Society?
    Why do we like making lists?

    Notes to self: Why do we like making lists?

    Well it was good enough for Ancient Egyptians and Picasso...
    Hong Kong protests: A good time to open a new restaurant?

    A good time to open a new restaurant in Hong Kong?

    As pro-democracy demonstrators hold firm, chef Rowley Leigh, who's in the city to open a new restaurant, says you couldn't hope to meet a nicer bunch
    Paris Fashion Week: Karl Lagerfeld leads a feminist riot on 'Boulevard Chanel'

    Paris Fashion Week

    Lagerfeld leads a feminist riot on 'Boulevard Chanel'
    Bruce Chatwin's Wales: One of the finest one-day walks in Britain

    Simon Calder discovers Bruce Chatwin's Wales

    One of the finest one-day walks you could hope for - in Britain
    10 best children's nightwear

    10 best children's nightwear

    Make sure the kids stay cosy on cooler autumn nights in this selection of pjs, onesies and nighties
    Manchester City vs Roma: Five things we learnt from City’s draw at the Etihad

    Manchester City vs Roma

    Five things we learnt from City’s Champions League draw at the Etihad
    Martin Hardy: Mike Ashley must act now and end the Alan Pardew reign

    Trouble on the Tyne

    Ashley must act now and end Pardew's reign at Newcastle, says Martin Hardy
    Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

    Isis an hour away from Baghdad -

    and with no sign of Iraq army being able to make a successful counter-attack
    Turner Prize 2014 is frustratingly timid

    Turner Prize 2014 is frustratingly timid

    The exhibition nods to rich and potentially brilliant ideas, but steps back
    Last chance to see: Half the world’s animals have disappeared over the last 40 years

    Last chance to see...

    The Earth’s animal wildlife population has halved in 40 years
    So here's why teenagers are always grumpy - and it's not what you think

    Truth behind teens' grumpiness

    Early school hours mess with their biological clocks
    Why can no one stop hackers putting celebrities' private photos online?

    Hacked photos: the third wave

    Why can no one stop hackers putting celebrities' private photos online?