Buy now, pay later: Revolut’s newest feature explained 

The buy now, pay later sector has grown rapidly since the beginning of the pandemic, as online shopping increased.

Revolut has chosen to pilot a new 'buy now, pay later' credit service in Ireland beginning this week.

Traditional retailers have been offering customers the option to pay for furniture and white goods in instalments for years. Now, the service has been extended online and dubbed “buy now, pay later”.

What is buy now, pay later?

Various companies offer buy now, pay later services in Ireland. While they may vary slightly depending on the provider generally, they allow a customer to spread the cost of a purchase across three monthly instalments.

The first instalment is paid upfront by the customer at the time of purchase, followed by two monthly instalments.

The cost and interest rates when using the service vary from provider to provider. Revolut has said its “Pay later” service will charge a fee of 1.65% per purchase, which is repaid as part of the final two instalments.

As concerns about the possibility of consumers, particularly young people, ending up in debt grow, Revolut has said its new will set specific credit limits for some customers. The company said it will also check affordability by linking to customers’ existing bank accounts through the app.

The buy now, pay later sector has grown rapidly since the beginning of the pandemic, as online shopping increased. When buy now, pay later provider Klarna launched in Ireland last year and attracted over 500,000 customers in its first six months.

As the sector expands, many regulators are concerned about the prospect of young shoppers being offered cheap credit and spending beyond their means.

What are the current regulations?

Last month, the Government extended the provisions of the Consumer Protection Act 2022. This change to the legislation brought buy now, pay later finance providers under the regulation of the Irish Central Bank.

Providers that offer buy now, pay later services, as well as other forms of indirect credit now need to gain authorisation from the regulator as a retail credit firm or as a credit servicing firm.

The new law also introduces an interest rate cap of 23% APR on all credit agreements provided to customers, other than money lending agreements which have a separate regulatory framework.

What happens if you don’t make repayments in time?

Buy now, pay later services can result in financial implications for shoppers.

Different companies that offer buy now, pay later services have varying terms and conditions when it comes to repayments. One provider may allow a customer to repay up to six months later or within an agreed timeframe. However, other providers may require payments to be made within one month.

It is important to note that when using buy now, pay later services you are entering into a credit agreement. Therefore, if you default on a repayment, the provider may call you and/or write to your address specifying a timeframe for you to make the missed payment.

The company may also notify the Central Credit Register that you have failed to make a payment. This can happen even if you make up for the missed payment at a later date. Some companies can take legal action against the consumer to recover the debt if it goes unpaid for a period of time.