Whether looking at the likes of SCS, DFS or Sofology, many already offer a buy now pay later service. This prompts a question. What’s the difference between a buy now pay later sofa deal through Klarna and the recognised retail companies?
Deposit requirement
Buy now pay later app companies such as Klarna spread payments over a relatively short period. This can be anywhere from three to 6 payments, with Klarna, for example, working on three payments within 60 days of purchase. With a buy now pay later app, the payments are equal; therefore, with Klarna, you would pay 33% on the day with the following payment 30 days later and 30 days later.
Traditional sofa retailers could take a deposit anywhere from 0% to 20%, dependent upon the purchase cost and your credit history. So, with the buy now pay later sofa deals, the deposit is set (total cost divided by the number of payments) while it can be more flexible with traditional retailers.
Duration of finance arrangement
Many traditional sofa retailers will offer buy now pay later finance up to 3 years and sometimes beyond. So there is a degree of flexibility concerning buy now pay later loans for sofas and similar equipment.
When it comes to buy now pay later app companies many are more geared toward short-term finance. This can be anywhere up to a year and sometimes beyond. However, Klarna, perhaps the leading buy now pay later app company, offers a default finance duration of 60 days. There is no interest in the standard arrangement where the retailer pays a fee to Klarna.
Interest payments on buy now pay later sofa deals
Similarly, to buy now pay later apps, you would not expect to pay interest on a buy now pay later arrangement. However, some companies may charge interest dependent on your credit history and the duration of the deal.
The standard Klarna finance agreement, where retailers Klarna a fee, does not include any interest charged to the customer. However, there is an alternative business model. This sees retailers pay nothing to the finance provider but instead customers are charged interest. As the main attraction of buy now pay later apps is the short-term nature of the arrangements and lack of interest, you may never come across a structure which charges the customer.
Amount of finance available
In theory, both buy now pay later apps and buy now pay later arrangements with traditional retailers have no absolute limit on the level of finance available. However, you tend to find that buy now pay later app companies offer a lower level of finance. Will this change in the future? Whether this may change as competition increases remains to be seen. However, at the moment, buy now pay later apps tend to be at lower levels.
Does the retailer suffer if payments are missed?
The concept of buy now pay later sofa deals is based on increasing sales. This is achieved using the services of third-party finance companies. Consequently, the third-party finance providers take on the risk, which can be greater the longer the finance duration. So, whether you default with a new buy now pay later app or one of the more traditional interest-free loans, it is the finance company, not the retailer, that suffers.
On the flip side, defaulting on either of these types of payment would impact your credit rating. This in turn would reduce your chances of securing future finance. Currently, traditional retailers will do a hard credit search, while many buy now pay later apps will do a soft search. However, this is likely to change in the future, as regulations are introduced, with all parties expected to carry out a hard credit search.
It is important to note that, in theory, the risk for a buy now pay later app company is reduced. This is because there is a significant deposit, and the arrangement tends to be relatively short-term.
Buy now pay later sofa deals a similar
It can be misleading in many ways. The new range of BNPL apps tend to offer more short-term finance arrangements than their traditional retail counterparts. However, everything is flexible and potentially negotiable, with nothing set in stone.
