Is There a Buy Now Pay Later Car Finance Solution?

There are so many times in life when we need to buy things we can’t exactly afford. Broken boiler? Surprise vet visit? Electronics suddenly stopped working? Yeah, life happens… And when it does, the desperate scramble to get your finances in order unfolds. That’s when the concept of Buy Now Pay Later comes in handy. If someone were to tell you: okay, you can have this item which would normally cost a considerable sum of money, but you don’t have to pay now - you’d most likely say yes, wouldn’t you? 😋

Yeah, we would too. It sounds like a dream not having to worry about the financial side of big purchases like a car when the need for them arises. In fact, one of the big purchases that come to mind is a car. Of course, many people would see the benefit in being able to purchase a car without actually having to pay for it all at first. But is buy now pay later actually a thing in car finance? Does it exist? Is it a good idea? Well, let’s find out!

What Is Buy Now Pay Later?

Don’t have enough cash stored away to pay for a car up-front and outright? Can’t pull off a big deposit? Well, some car finance providers will allow you to walk away with a car anyway. Yes, you read that right - you could be allowed to pay nothing for almost a month when you buy a car. In fact, the two most popular types of car finance, PCP and HP, are available without a deposit. 

However, it’s not exactly as simple and marvelous as it sounds. The downside is that with Buy Now Pay Later, you’ll have to pay a much higher interest rate overall, and pay more each month for your car than if you were putting down a deposit. You’ll also have a good credit score and meet stricter criteria set by the lender to be able to have access to BNPL (Buy Now Pay Later).

If you meet the lender’s criteria, you very well might be eligible for a BNPL agreement, also called a no deposit option. This works in the following steps:

  • You find a car
  • You reserve it
  • You apply for finance
  • You request a no-deposit or BNPL finance quote
  • You’re accepted for your car finance deal
  • Your car is delivered, and you don’t have to pay a penny…
  • …Until 30, 60 or 90 days later, which is the time up until you can not pay your first fixed monthly payment
  • You then have to pay back the loan until the end of its term.

Is Everyone Eligible for Buy Now Pay Later? 

Spoiler alert: unfortunately, not everyone is eligible for a Buy Now Pay Later car finance deal. Why? Well, because the most important criterion for zero-deposit finance is a strong credit score. This means that you’ll only be able to take out a Buy Now Pay Later car finance deal if you have a very good credit record, and you’ve shown that you can take credit out and repay it on time. 

Potential lenders will be able to assess this by putting you through a personalised and systematic affordability check to verify whether or not you can confidently take on your monthly repayments. With no-deposit options, these checks will be significantly more meticulous, because there will be higher monthly payments tied to the fact that you didn’t pay a deposit. It makes sense really - deposits, though they can be a pain, are also a way of shaving off some of the monthly loan repayment amounts. Essentially, BNPL car finance is seen as more of a risk to lenders, because they don’t get part of their money back as soon as if you were to put a deposit down. 

What Are the Benefits of Buy Now Pay Later? 

BNPL is actually a pretty simple concept. The BNPL provider will be paying the retailer of your choice when you purchase something instead of you. You’ll then have a set period of time to repay the BNPL provider, stretched out into different payments. This will give you the opportunity to spread out the cost of your purchase, which can sometimes be an option of great value.  

You’ll most likely have heard of some of the main players in the BNPL market, which are:

One really important thing to remember is that Buy Now Pay Later does absolutely not mean that what you’re buying is cheaper. It just means that you’ve got more time to pay for it. This has proven to be very attractive to UK consumers, as since 2021, BNPL has become the second most widely used form of borrowing. However, a lot of people aren’t actually aware that it is a form of borrowing, with the same set of risks and consequences. You can absolutely fall into debt by using BNPL, so be cautious when using it, whatever purchase you make. Remember, you could end up having to pay a late payment fee if you fail to repay the amount in a timely manner. And of course with BNPL although you may get zero interest if you repay on time (which could be up to a year) and may work well for that stylish new dress, a car is an expensive purchase so you most likely will need a deal with interest applied, as in most cases you aren't likely to be able to pay the loan off within a very short period..

The Bottom Line

There’s a fair chance that you will get a far better interest rate on a car loan if you put down a deposit instead of using BNPL. If you’re unsure of what to choose, most lenders will allow you to request a quote or get “pre-approved” for different types of loans before you make your final decision. This is a good way of comparing different interest rates, as you will receive a “decision in principle” that will detail monthly repayment amounts and exact interest rates. 

Here at Carmoola, we provide a seamless experience for people to get car finance. We also have a huge database of resources you can use to familiarise yourself with the process of getting car loans, like a handy dandy car finance budget calculator. We know that buying a car can be a puzzling time, so we have a regularly updated blog with loads of articles on everything from choosing the right type of car finance agreement for your situation to managing your credit score. Check it out! 🤗