Many catalogue brands, online shops and some high street shops offer buy now, pay later credit. You might be offered to pay with catalogue credit, store cards, hire-purchase, point-of-sale finance or another type of finance related to purchasing in a store.
What to think about before you take out store credit
You get finance on an individual purchase and pay it off over time. If you’re thinking of using a ‘buy now, pay later’ deal, make sure you know what you’re getting into before you use in-store finance.
Store cards, catalogue credit, hire purchase and point-of-sale finance can be useful if you’re able to always pay back what you owe each month, but if not, they and all forms of store credit can be expensive – so check whether other credit options are better.
It’s important to make sure you choose the right type of credit or loan for your situation.
Ask yourself:
- Do I really need the item? If it’s a luxury item, it might not be worth taking out credit to pay for something you don’t really need.
- Can I wait until I have enough money to pay upfront for the item?
- Can I buy the item more cheaply elsewhere? If it’s a branded item, you might be able buy a cheaper non-branded version somewhere else or even buy the same item second-hand through an auction or recycling site.
- Can I borrow at lower cost elsewhere? If you can’t get the item at a lower price, consider a cheaper form of credit, such as a 0% credit card (as long as you’re sure you can pay it back in full before the 0% period ends).
- Have I checked all the terms and conditions?
- Do I understand the interest rate and the annual percentage rate (APR)
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Types of store credit
Catalogue credit
Catalogue credit, also known as ‘shopping account’ and ‘mail order account’, is a way of buying goods, either by post or online, with payments being spread over weekly or monthly instalments. A typical repayment period might be one or two years.
You can either get your own catalogue or buy through an agent. The agent usually earns commission on what they sell.
People often refer to their credit purchase as being bought ‘on account’.
Mail order or catalogue credit can sometimes be interest-free, as long as the cost of the item is repaid within a set period of time (usually between three and 12 months).
But if you don’t pay on time, interest can start mounting up quickly – and some catalogues charge interest from the date of purchase.
Hire purchase
A hire-purchase (HP) agreement is often offered when you buy a car or furniture.
Unlike other types of store credit, you don’t own the goods until you’ve made the final payment. This means that, in effect, you’re hiring the goods with an option to buy them.
When you’ve made all the payments to the finance company, you can opt to buy the goods by paying a final ‘option to purchase’ fee. This might be a small nominal amount or something much larger. These larger payments are often known as ‘balloon’ payments.
Conditional sale agreements
‘Conditional sale’ agreements work in a similar way to hire purchase – ownership is conditional on making all the payments. If you don’t make the payments, the company can take the goods back.
In both cases, you can’t sell the goods until the agreement has come to an end. And if you don’t keep up your repayments the goods can be repossessed.
However, if you’ve paid at least a third of the total amount payable, the company can’t seize the goods without getting a court order first.
Store cards
Store cards can only be used to pay for goods in a particular store or group of stores.
You’re likely to be offered a card at the checkout when you come to pay for the goods.
The interest rates on store cards are often much higher than normal credit cards.
This means unless you pay off the balance in full each month it can take a long time, and cost a lot more, to repay the debt – particularly if you continue to use the card.
Before you sign up, make sure you can afford the repayments.
If you sign up but change your mind, there's a 14-day cooling-off period within which you can cancel the agreement.
Some store cards might actually be ‘charge cards’, which means you have to pay off the full balance of what you’ve paid for at the end of each month.
If you don’t, you’ll get extra charges.
Store-linked credit cards
Store-linked cards are credit cards that carry the branding of the store you got the card from. They might come with benefits and discounts available when you use your card to pay for items sold by the company who supplied you with the card, but, unlike store cards, they can be used outside of the store as well.
Store-linked credit cards might have longer interest-free periods than store cards, and similar rates of interest to unbranded credit cards. But you still need to think how you’re going to pay them off – make sure you do this before any introductory period ends.
Pros and cons of store credit
- If there’s an interest-free period and you can pay off your balance during this period, your credit is free.
- It can be a more affordable way of paying for necessary items such as school uniforms than taking out a payday loan, or using home credit.
- You might be tempted by the interest-free period but end up delaying your repayment and paying a high rate of interest, costing you far more than the items are worth.
- Missing a payment can affect your credit rating in the same way as missing a loan repayment or credit card payment.
- If you’ve bought through an agent who is also a friend or neighbour, not being able to make repayments might put them and you in an awkward situation.
- Having too many credit agreements (including store credit) can lower your credit rating, even if you’re making your repayments on time. That’s because lenders might look at the total credit you have available to you and the total amount you have to repay when they’re deciding whether to lend.
See our guide, How to reduce the cost of borrowing on your credit and store card.
Alternatives to store credit
The best alternative to in-store finance, unless it’s 0% finance, is to buy the goods with money you already have. In some cases, you might be able to negotiate a discount for cash.
If the goods are something you really want and 0% finance isn’t available, could you save up for them?
If you need them immediately, research your options. It might be better to take out an interest-free credit card or a personal loan.
Find out more about the costs of borrowing, including working out a repayment plan and deciding how much to borrow, in our section on Managing credit well.