With the festive season upon us, it’s easy to get swept up by the allure of twinkling lights, festive decorations, and the joy of gift-giving. But as the anticipation of the holidays rises, so can your costs. One question might creep onto the lips of those of us not wanting to skimp on the festive magic: “Should I have a Buy Now, Pay Later (BNPL) Christmas?”

Getting Christmas shopping, gifts and even Christmas decorations on Buy Now, Pay Later, is on the rise. BNPL has gained popularity in recent years, offering an alternative to traditional credit, and changing the way many consumers approach gift-giving. In this blog, Loqbox delves into the world of BNPL, exploring what it is, how it works, its pros and cons, and whether it might be the right fit for your Christmas celebrations.

What is Buy Now, Pay Later?

The clue is in the name: with Buy Now, Pay Later you can make a purchase now, and pay for it later, spreading the cost over a set period of time. This often involves splitting your payments into three or four monthly instalments or delaying them for 30 days or so, to spread the cost.

Buy Now, Pay Later has changed the way many of us shop. It can give us options to manage our money through difficult or expensive times. So, with the holiday season around the corner, many of us might be considering it for our Christmas shopping. 

But should you Buy Now, Pay Later Christmas gifts and presents? The decision is yours. Before you decide, it’s important to understand how it works, what sort of credit agreement you might be entering into, and the impact it could have on your finances. Let’s dive in. 

How does Buy Now, Pay Later work?

Some of us remember a time when interest-free credit, and options to pay monthly for purchases, were usually only available for things like sofas, kitchens and other household furniture items. But in recent years, Buy Now, Pay Later has become widely available as an online checkout option. Now it’s common to see the option to Buy Now, Pay Later for everything from haircuts to takeaways, and  Buy Now, Pay Later Christmas trees.

BNPL works in a similar way to credit cards, but there are some important differences. Firstly, it’s common not to pay interest on repayments if you make them on time. However, there’s usually a limit to the amount of time you have to pay back the full amount, so if you run behind, you’ll often face penalties. BNPL is currently less regulated and protected than a credit card.

Is BNPL regulated?

In the UK, the Financial Conduct Authority ( FCA) is responsible for regulating the conduct of financial firms. They regulate most of the major banks and credit providers, putting measures in place to protect consumers to help ensure they receive good outcomes from firms. 

Currently, the FCA doesn't regulate all BNPL products. But they are working with some providers to improve Buy Now, Pay Later contract terms, and make them clearer and fairer. For example, they want to make it clearer to people that, by using BNPL, they are entering into a credit agreement. The rules are expected to change in the near future, with potentially more stringent regulations coming into effect. 

When that happens, you may be given the same protection that credit card users get. There may be credit checks to help the BNPL lenders ensure that you can afford the credit and to stop you from accumulating debts beyond your means. 

Do I need a credit check for Buy Now, Pay Later?

Unlike conventional credit options, many BNPL services don't require a hard credit check. Instead, when you apply for BNPL, you will likely be checked with a ‘soft’ credit search. That means your credit history will be looked at, but it doesn’t leave a mark, or a flag, on your credit report and won’t affect your credit score. You can find out more about soft vs hard credit checks here. 

While that can be useful, particularly if you’ve been excluded from affordable rates on credit cards, it also means that the providers don’t always check that you can afford to make repayments. So there is some concern about how easy it is for people to get into debt with BNPL.

What are the pros of a Buy Now, Pay Later Xmas?

Convenience is one of the main reasons people might choose to Buy Now, Pay Later Xmas presents this year. Christmas can put additional pressure on our finances — with gifts, decorations and social events — finding ways of spreading the cost over a longer period of time might make sense for you. 

BNPL is often available to people with a more limited credit history. So, if you need the benefits of credit over the festive season, but your credit report isn’t very strong, BNPL could offer another payment option. Although, regulation changes could impact on this so it’s recommended that you check the latest information whenever you consider BNPL.

When it comes to managing your money, some people find that BNPL can be a great, budget-friendly way of juggling your payments for larger than usual purchases, like Xmas. It can help to relieve pressure at what can otherwise be an expensive time of year. However, it’s important to think carefully about whether you can afford repayments. 

What are the cons of Buy Now, Pay Later?

Christmas shopping with pay monthly gives you easy access to borrowing and can lead to overspending and potential debt. While BNPL providers offer flexible payment options, you’re still entering into a credit agreement. Failure to repay what you owe can have serious negative effects on your money and your credit history.

Many BNPL providers are interest-free. That means, unlike credit cards, you can get credit flexibility without increasing your purchase price. But missing payments can trigger late fees instead, and these fees can often work out higher than regular interest payments. So, you can quickly find yourself with mounting debts if you don’t stick to your repayments. And if your payments were to go significantly overdue, some providers might report this to the Credit Reference Agencies. 

With mounting late fees and debts, your finances might suffer well into the new year. If that were to happen, the potential for BNPL to indirectly damage your credit score increases. For example, you might find that you have to use your overdraft to cover your BNPL repayments, or use credit cards to pay for the essentials. This can harm your ability to use credit in the future and can take a lot of time and effort to repair. 

Find out more about your credit score and fast and proven ways to boost it. 

Improvements to your credit score are not guaranteed. 

Should I use Buy Now, Pay Later for Christmas?

BNPL can give you options to spread the increased cost of Christmas over a longer period of time, lessening the immediate impact on your pocket. With some careful planning and realistic budgeting, BNPL can be a cost-effective way to borrow without building up interest payments.

But the temptation to borrow beyond your means is real. Removing financial pressure at Christmas could encourage you to push the boat out further than usual. But failing to meet repayments could seriously damage your bank balance and your credit history, which can make it harder to access credit options — including mortgages — in the future.

Before you decide to make this a Buy Now, Pay Later Christmas, consider your financial situation and how much you can afford. Try to be honest with yourself. Overspending and accruing debt can cause long-lasting problems. But using BNPL to make considered purchases with a realistic repayment plan could help to have yourself a very merry Christmas.