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17 Oct 2020

PayPal to launch buy now, pay later scheme: how does it compare with Clearpay, Klarna and Laybuy?

You can spread purchases worth just £45, but beware the £12 late payment fee

Hannah Downes

PayPal has announced a new 'buy now, pay later' (BNPL) scheme ahead of the Black Friday and Christmas shopping season.

Its 'Pay in 3' scheme will launch in late October, and will be available to use at Crew Clothing, French Connection, Robert Dyas and Ryman.

PayPal's new payment option is similar to those offered by Clearpay, Klarna and Laybuy, although each scheme varies in terms of repayments and late fees.

While the option to spread the cost of Christmas or big purchases on Black Friday might be appealing, it's important to be clear on how each scheme works and what to do if something goes wrong.

Here, Which? explains how PayPal Pay in 3 will work and analyses how it compares with BNPL services from Clearpay, Klarna and Laybuy.

Have you ever had an issue with a BNPL scheme? Tell us about it using our new BNPL complaints form.

How do the repayments work?

Each BNPL scheme has a slightly different way of taking payments from you.

Many of the schemes will take your repayments automatically, so it's important to make sure you've got enough money in your account ahead of your repayment date.

BNPL scheme	Repayment policy
PayPal	You pay over three, interest-free payments, which are taken automatically from your account each month.
Klarna	Klarna's 'Pay in 30 days' service means you pay 30 days after you've received your product. Its 'Pay Later in 3' option lets you spread the cost of a purchase over three instalments, which are taken automatically from your account. It also has a 'Pay in 6 - 36 months' financing product for big-ticket items.
Clearpay	Repayments are split into four instalments, taken automatically from your card every two weeks. You pay the first instalment at the time of purchase.
Laybuy	Repayments are split into six instalments, taken automatically each week on your selected payment day.

How much can I spend?

Some BNPL schemes will offer you a credit limit, based on your repayment history and an affordability assessment.

The retailer you're shopping with might also ask that you spend a certain amount to qualify.

BNPL scheme	Maximum/minimum spend
PayPal	You can spend between £45 and £2,000.
Klarna	Klarna will give you a credit limit, based on your previous credit history and an affordability assessment. Retailers may give different spending limits. Clarks lets you split your payments with Klarna on orders over £35, but other retailers ask you to spend over £100 for their 'Pay Later in 3' option.
Clearpay	You're given an estimated amount you can spend, based on whether you make repayments on time and how long you've been using Clearpay. Retailers often have different spending limits. Urban Outfitters says your bag value must be between £10 and £800, while M&S says your basked must be between £30 and £800.
Laybuy	As with Klarna and Clearpay, different retailers will have different minimum and maximum spends. WH Smith says you can only use Laybuy with orders over £15, while Funky Pigeon's minimum spend is £20.

Late fees: what happens if I miss a payment?

Most BNPL schemes are interest-free, but you can incur fees for late payments. These fees can be considerably higher than your initial purchase.

Missed payments or failure to pay back can also be noted on your credit report and the mark can stay there for six years.

Don't bury your head in the sand if you think you're going to miss a repayment - contact the firm as soon as possible to let them know and rearrange a payment plan.

BNPL scheme	Late fees
PayPal	If your repayment fails and you take no action to resolve the situation, you will incur a £12 late fee.
Klarna	Klarna doesn't ever charge late fees with 'Pay in 30 days' or with its 'Pay Later in 3' option. If you choose to 'Pay Later in 3' and don't have enough money in your account on the agreed repayment dates, Klarna will try again after seven days. And if this payment fails, it will then try again in a further seven days. If the debt remains unpaid after several months, your information could be passed on to a debt-collection agency.
Clearpay	The initial late fee for a missed repayment is £6. A further £6 is then taken if the payment remains unpaid seven days after the due date. Orders below £24 are subject to a maximum late fee of £6. For orders above £24, late fees are capped at 25% of the original order or at £36 - whichever is less.
Laybuy	If you don't make a payment on its due date, you then have a further 24 hours to pay, or you'll be charged another £6 fee. And if you don't make the payment within the next seven days, you'll be charged a further fee of £6. If you continue not to pay they may arrange for a debt-collection agency to collect the amount owed.

Find out more:can using a BNPL scheme harm my credit score?

Something's gone wrong with my order: what protections do I have?

Aside from Klarna's 'Pay in 6 - 36 months' finance option, BNPL schemes aren't regulated under the Consumer Credit Act.

This means you won't be protected by Section 75 of the Consumer Credit Act (as you would with other forms of credit) if something goes wrong with your order.

Each BNPL firm has its own protection policy in lieu of Section 75, so it's worth looking into this before signing up to one.

If you use PayPal's 'Pay in 3', you'll benefit from its Buyers Protection scheme, which helps you secure your money back if your order doesn't turn up or isn't as described.

Both Klarna and Laybuy told Which? that they would cancel the debt if something went wrong with an order, while Clearpay said that customers may be refunded if the issue with the retailer couldn't be resolved.

Find out more:Section 75 of the Consumer Credit Act

How to shop safely with BNPL schemes

Set a spending limitMake sure you know what you can realistically afford to pay back before purchasing.
Return unwanted items swiftlySend back any unwanted items promptly to ensure your balance is updated before repayment dates.
Use reminders Track when your next repayment is due by setting alerts on your phone or in your diary.
Don't sit in silence Tell the BNPL firm if you know you're going to miss a repayment. They may be able to freeze late fees or offer an alternative option.