Why that buy-now-pay-later deal could cost more than you think
Buy-now-pay-later credit deals allow shoppers to defer payment for goods for a set period, such as six months or a year. Some charge interest on instalments while others are interest-free for a period of time.
These credit facilities can be particularly beneficial to consumers on a tight budget – those who may need to buy a new washing machine or fridge now but who have no savings to use. For others already concerned about the cost of Christmas, they may be tempted to use these credit deals to defer payment.
However, while the deals allow you to make use of the goods now and pay for them later, there can be issues relating to delivery costs.
Although the delivery cost may represent a small overall cost compared to the original item purchased, it may not be included in the buy-now-pay-later credit option so customers could be charged interest and may have their credit scores adversely effected.
We spoke to four popular buy-now-pay-later providers to find out how they treat delivery charges:
Delivery charges vary, with standard delivery coming in at £3.99, while for TVs and white goods the price is £6.99. For express delivery, shoppers can pay £16.99 while for standard delivery on large items, the cost is £8.99 while express delivery comes in at £18.99.
Shop Direct, behind both Very and Littlewoods, explains that these delivery charges are excluded from deferred payment (BNPL) credit offers. Instead, delivery charges are processed on its standard credit terms and are therefore subject to interest. This means the delivery charge and item bought are split, so that the good is on the BNPL terms while the delivery cost is placed on credit.
As such, shoppers could be hit with a 39.9% rep APR interest rate on the delivery cost.
However, customers can avoid paying any interest on delivery charges by paying the delivery charge in full when they make a payment on the corresponding account, or by choosing Very’s ‘Take 3’ option which allows you to spread the cost in three equal payments over three months.
Despite being part of Shop Direct which includes the Very brand, delivery charges here are treated very differently.
Standard delivery is free, while next day delivery costs £4.99. Standard delivery on large goods is also free, though shoppers can pay £10 for express delivery of large goods.
However, a Littlewoods spokesperson confirmed that delivery charges are excluded from BNPL credit offers. They are processed on its standard credit terms but do not incur interest while the interest rate typically used to calculate BNPL interest is 44.9% per annum.
Littlewoods further confirms that delivery charges are due to be paid in full on the statement on which they appear, adding “no interest is charged, even if it is not paid off in full.”
With the Argos BNPL scheme, if you repay the balance of this plan in full before the end of the period, no interest will be charged – it typically stands at 29.9% per annum.
An Argos spokesperson said the BNPL schemes “gives customers the flexibility of including any cost of delivery or paying this up-front in store. This allows customers to cover the cost of their purchase at a time that suits them.”
Therefore, if the delivery cost is included as part of the BNPL deal and you don’t pay the balance off within the given period, interest will be charged on the total purchase, including the cost of delivery.
Delivery at this retailer costs £3.95 for small item standard delivery, while for large items, standard delivery is £695, rising to £14.95 for next day delivery and £24.99 for next day delivery with a specific time slot.
Depending upon the credit chosen, you can spread the cost between nine – 36 months at 19.9% APR or nothing to pay for six months. With the latter, you can pay off the outstanding balance and pay no interest.
A Currrys/PC World spokesperson said delivery is typically free, though delivery (large items) on a Saturday may cost £4.99 while overnight delivery costs £19.99.
Customers then have the choice of adding the delivery charge to the BNPL scheme where it would form part of the total balance to be paid, which could include interest (as above).
However, customers can choose to pay for the delivery separately at the point of purchase, helping you avoid any additional interest on this sum.
‘A breakdown of charges should be made clear’
Thomas Ridley Siegert, research and consultancy manager at Fairer Finance, said whether it’s an extra £1 or £25 is largely irrelevant, but shoppers need to know exactly what is included.
He said: “I don’t think many consumers are aware that they could be paying interest on a delivery charge that they could have paid for upfront.
“It’s not about how much the cost of delivery is, but that they could have paid for it separately. It must be made clear to customers exactly what the buy now pay later deal entails, what’s included and a break down of charges should be made clear.
“These deals have benefits and enable shoppers to afford things they may not necessarily afford straight away. But the important thing is that the company explains everything to you as it can have an effect on credit scores, therefore having an implication for the future.”