The first mail order catalogue was issued in America in the late 1800s and allowed people to purchase items as if they were in a store. It was a brand new concept and hugely popular. It follows then that catalogue credit was also popular upon its introduction; allowing customers to purchase items through a catalogue, rather than in a store, and to spread the cost of that purchase over a few weeks or months so as to reduce the immediate financial impact. Catalogue loans have been around for some time, but a more modern concept we are becoming increasingly familiar with is buy now, pay later, or “BNPL”.
Buy now pay later schemes are very new in the credit world and essentially offer a catalogue credit service at a much wider variety of retailers. There are a few businesses that provide this service and it’s common to see two or three listed online when you get to the checkout or even just when viewing an item. They work by allowing you to borrow money in order to make a purchase. The credit is available almost instantly and you then repay over the next few months. Typically, there is an interest free period of around 3 months, but it varies between providers. If you don’t repay the loan within the interest free period, then interest starts to accrue, and you might be subject to late payment fees.
Because catalogue loans are offered by the shop itself, they are a restricted credit facility in that you can only use it when purchasing items from that retailer. Buy now pay later, on the other hand, is provided by a third party which is then offered at a multitude of retailers, so you can use it at almost any online shopping service that is signed up.
Until recently, buy now pay later did not appear on people’s credit records, so although you could borrow money and had committed to repayments, there was no record of this for other lenders to view. It made it difficult for lenders to gain an accurate picture of their customers’ financial circumstances and could potentially lead to lenders making loan decisions based on out-of-date or inaccurate information. As a new product, BNPL was unregulated for some time, but the Financial Conduct Authority have now introduced new changes for buy now pay later firms to better protect customers from potential harm.
Often, people determine which type of credit is best by the cost – and this is a factor you should include when weighing up your different options. It can be difficult to tell which type of credit is going to cost the most if both options offer an interest free period. If you know you can afford to repay the balance in this timeframe, then your choice will probably come down to personal preference of repayment dates and frequency. If you’re not sure you can repay it in this time, then you may need to compare the interest rates or default fees applied by both catalogue loans and buy now pay later. Buy now pay later tends to be a shorter term product, whereas some catalogue credit can be taken over a few years, so this should also affect your decision depending on how much you need to borrow. However, the financial impact is not the only consideration you need to take. In order to decide on a borrowing option, you need to look at your circumstances and your ability to repay. Of course, in an ideal world, you would be able to repay the credit in the interest free period. But if the item costs a lot of money, you might not be able to repay this over the next three months.
Working out whether you actually need to take out credit is also important. Buy now pay later schemes especially, are easily accessible and supplied within seconds. This can make it almost too easy for customers to use this option when purchasing items online, and impacts people’s decision making process. Usually, if you don’t have the funds for a particular item, you probably delay the purchase or look at your budget to see if you can adjust your existing commitments. However, if you had readily available credit, you might wonder where the harm is in using this instead. Unfortunately, using credit for leisure purposes can quickly eat into your disposable income and make it much harder to manage unexpected emergency expenses. While many people love shopping and buying new things, you need to consider if it’s actually worth taking out credit in the form of BNPL or catalogue loans, or whether it’s better to save these options for necessities.
While BNPL is more accessible, it isn’t necessarily a better option. Really, the only way to determine the best instant loans is by reviewing your own circumstances first. You need to make sure that any kind of borrowing – even with an interest free period – is affordable and that the future repayments are not going to cause you financial difficulty.
While convenient, taking out credit to cover luxury items is rarely advisable. Catalogue loans and buy now pay later should really be saved for expensive and unavoidable purchases like replacing the fridge or car tyres. This helps avoid unnecessary credit usage and enables you to spread the financial impact of emergency payments. Using credit unnecessarily might mean you’re unable to gain credit when you come across a real cashflow issue.
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