How do returns work with buy now, pay later?

The buy now, pay later returns process

Buy now, pay later is a form of unregulated credit that allows people to buy a product and then pay over time in instalments instead of paying the whole amount up front. This flexible payment method can be found both online and in-store, giving shoppers another option during checkout.

When people pay in instalments using an in-store or online shopping instalment payment plan (like BNPL) and want to return something, they need to know how to get back the money they've already paid. They also need to know what to do about any additional payments still owed.

It's a good idea to look at the return policy of the store where the item was bought, along with the BNPL terms.

The process typically works like this:

• The return is initiated. The shopper will follow the retailer’s standard returns process. This can include bringing an item back to a physical store or, in the case of an online purchase, mailing the item back to the retailer.

• The merchant processes the refund. When people buy an item with BNPL, the BNPL provider pays the merchant on the shopper’s behalf. That means when the merchant accepts a return, they send the money back to the BNPL provider, not to the buyer.

• The BNPL provider applies the refund to the buyer’s BNPL account. Once the BNPL provider receives the refund, one of two things usually happens. If the buyer has already paid off all their instalments, they will receive a credit in their BNPL account. If the buyer still owes money, the refund will be applied to the remaining payments, with any balance applied to the buyer’s account as credit.

The pros and cons of making returns with BNPL

While buy now, pay later credit can help make large purchases more manageable, the returns process can be slightly more complicated than a typical returns process. There are a few pros and cons to consider when making a BNPL purchase that requires a return.

Advantages of BNPL returns

• Convenience. One of the key BNPL advantages is convenience, which extends to the returns process. Because people don’t have to pay the total cost upfront, they don’t have to wait for a full refund to hit their account in the event of a return. A shopper could purchase and return an item before it’s time to make the next payment, giving them added flexibility.

• Transparency. Many BNPL providers offer built-in return tracking so people can easily monitor the status of the return and related payments. This helps show where their refund stands for budgeting purposes in case they need to make a payment while the retailer or BNPL provider processes the refund.

Drawbacks of BNPL returns

• Continued payments. Depending on when someone returns the item, they may sometimes make another payment before the return is processed and finalised. However, they can track their return’s progress and contact the BNPL provider to request that no further payments are taken.

• Varying return policies. As part of a smart online shopping process, people should look through the specific buy now, pay later terms and conditions of the provider to understand how their refund will be processed.

BNPL returns versus standard returns: Should I pay in instalments?

BNPL returns and standard returns can have a different impact on personal finances. People making a large purchase that may require a return should consider these differences before deciding which purchase method to use.

For standard online returns, the process is relatively straightforward. After initiating the return, the retailer provides a full refund to the original payment method. If it was put on a credit card, this can take a few days, while a cash purchase can be refunded immediately.

BNPL lets people pay in smaller amounts over time, which can help them budget and free up cash. For a BNPL return, a shopper may make payments until the refund is processed unless they inform their provider of the return so that they stop repayments. On the other hand, they may have less money tied up in the purchase and owed back for the return because they were paying in instalments, which can help cash flow.

How to buy now, pay later with PayPal

PayPal buy now, pay later, known as PayPal Pay in 3,* gives people the flexibility to break up their payments over two months. With no interest, late charges, or setup fees, it can help people make purchases and manage budgets.

How does PayPal Pay in 3 work? It’s simple: Buyers apply for Pay in 3 at checkout. If approved, they make the first payment at the point of purchase at checkout. They then make the next two payments automatically on the same date over the next two months. People can use Pay in 3 to make a purchase ranging from £30 to £2,000.

When a buyer returns an item purchased using Pay in 3, PayPal applies the refund from the merchant to the Pay in 3 loan. If the refund satisfies the balance, the buyer will have no further repayment obligation.