How does Zilch work?

Curious about how Zilch works? We’ll break it down for you here. Keep reading to learn how Zilch works and whether you should use it.
An image of a screen with a purchase going on through Zilch

Everyone is feeling the pinch in their wallets these days. And if you’re being forced to stretch your budget further than ever, you might be tempted by buy now, pay later (BNPL) services like Klarna, Clearpay, and Zilch. But are they a safe way to spread costs? Here, we’ll explore how Zilch works, explain what risks are involved, and what you should do to avoid hurting your finances and credit score. Let’s get right to it!

How Zilch payments work

Once approved, Zilch offers two different payment options that mirror other BNPL providers’ offerings.

  1. Pay Now: When you buy an item, you pay for your purchase in full and unlock some cash-back or rewards of up to 5%.
  2. Pay Later: When you buy something, the payments are spread over equal instalments of either six weeks or three months. If you pay each instalment on time, you won’t owe Zilch any interest or fees (hence the name).

Zilch buy now pay later example

Let’s break down how Pay Later looks if you’re buying a new TV via the six-week option.

Let’s say it’s January 1st, and you buy a smart TV that costs $1000 through Pay Later. You choose the six-week option. This is what your repayment schedule would look like:

  • On January 1st, you pay 25%, or £250.
  • On January 15th, you pay £250.
  • On January 29th, you pay £250.
  • On February 12th, you pay the final 25% instalment of £250, and you’re all done.

You can also pay 50% upfront, which means your instalments will be smaller every two weeks.

If you’re planning to use Zilch for a purchase, you should check if the retailer is one of Zilch’s partners. You should research their payment plans before making any purchase.

What do you need to create a Zilch account?

Setting up a Zilch account is pretty straightforward. You’ll need to provide:

  • A valid UK debit card
  • A UK-based postal address
  • A mobile phone number
  • An email address

Zilch also has an identity verification process that you need to open an account. For this, you’ll need to provide a selfie alongside some form of photo ID.

The IDs that Zilch accepts are either a valid and current:

  • Passport
  • Driving licence (full or provisional)
  • CitizenCard with a holographic PASS logo

Once your selfie and ID match, Zilch will perform a soft credit check. This step is standard practice for buy now, pay later account applications. It’s important to note that this soft credit check will not affect your credit score, even if your application is refused.

Is Zilch’s cashback worth it?

Zilch offers up to 5% cashback rewards if you choose the "Pay Now" option. However, the keyword there is ‘up to.’ Zilch’s Reward Rate is currently set at 0.5% cashback for most purchases, with 5% cashback only available for select retail partners. Zilch’s Pay Later option doesn’t come with Zilch Rewards or cashback.

Before making a purchase or using Zilch, it’s worth considering that rewards can’t be converted to cash or transferred to your bank account. Plus, these rewards expire within 12 months. So, if you’re thinking about using Zilch to buy an item, carefully weigh whether the cashback or rewards are enough to justify the upfront fee of 25-50%.

And if you do make the purchase? Do yourself a favor and use your rewards!

Know the risks of using Zilch

Using any credit facility comes with some level of risk, and Zilch is no different. Before deciding whether these services are right for you, you should consider the following risks.

  • The Buy Now, Pay Later (BNPL) models are attractive because they help you spread the cost of purchases over an extended period. But this has the side effect of making purchases feel more affordable than they actually are, leading you to spend beyond your means.
  • Missing your scheduled Zilch payments can lead to fees and even restrictions on your future use of Zilch. Plus, a late payment can hurt your credit score and mean that you end up having to pay more for the item than you would have if you’d paid in full.
  • Splitting the cost of an item into instalments can have a psychological effect. For example, it might encourage some users to buy items they wouldn't usually purchase if they were paying upfront.

Zilch’s costs and fees

Zilch’s Pay Now option is fee-free. The Pay Later option is also fee-free, on the condition that you make payments on time. Missing payments can result in late fees and can restrict your ability to use the Zilch platform. Snoozing payments for 4 days is free, but Zilch charges a £1.50 fee if you Snooze a payment for 8 days.

Managing Zilch payments

Meeting your Zilch payments is essential for avoiding fees and negative impacts on your credit score. The Zilch app does make tracking and managing upcoming payments relatively easy, using a mix of features to help you meet your obligations.

Some of the features you need to know include:

Payment reminders: Push notifications that remind you about upcoming payments.

Early repayment: An option that lets you pay your balance early without incurring extra costs or charges.

Payment rescheduling: Zilch has a snooze option that lets you delay payment for four days. However, using this option comes with a small fee as we mentioned above.

Ultimately, it's crucial to keep up with payments and budget accordingly, as late or missed payments can lead to additional charges and complicate financial planning.

Can Zilch impact your credit score?

Since January 2023, using Zilch can affect your credit score.[1] Zilch shares payment information with all three major credit reference agencies: Equifax, Experian, and TransUnion. As such, missed payments could have a negative effect on your credit report.

It’s also essential to repeat that the initial soft credit check performed when opening an account does not affect your credit score. If you use Zilch responsibly, it can lead to improvements in your credit score, making it an interesting alternative to high-interest credit-building cards or loans.

Is Zilch right for you?

Zilch can be a good option for users who want some flexibility in their online and offline purchases. If you’re able to budget effectively for payment installations, Zilch can give you the wiggle room you’re looking for.

However, like all BNPL services, there are some risks with Zilch. For example, if you’re prone to impulse purchases, Zilch might make you more likely to pull the trigger on products that you can’t really afford. Late payment can result in fees and a hit to your credit score.

Before using the service, assess your financial situation, spending habits, and credit goals. Only then can you accurately determine if Zilch aligns with your needs.

Curious about how other buy now, pay later services could impact your finances and credit score? Check out our articles about how BNPL services like Klarna and Clearpay impact your credit score. Or, to start building your credit score the proper way, download the Pave app today.

We’ll help you track your upcoming payments so you can avoid damaging your credit score, and with a credit builder account, you can actively build your credit score by strengthening your payment history. With Pave Plus, you can track your score in the app with both TransUnion and Equifax, so you can be confident next time you apply for credit.

Ready to get started building your credit score? Download Pave today!