Money Matters: Beware the risks of 'Buy Now, Pay Later’

This column first appeared in the Shropshire Star on 08/02/2022

The last couple of years has seen the rise in prominence of companies offering 'Buy Now, Pay Later’ (BNPL). Once a niche form of credit, these deals have exploded during the pandemic. They often come with slick advertising campaigns, offering consumers the chance to get items quickly and cover the cost at a later date.

Buy Now, Pay Later is a simple concept: instead of you paying a retailer for goods or service in full when at the checkout, the provider pays the retailer for you. You then repay the provider over a few weeks or months, meaning you can spread the cost of your shopping.

Sounds fine… but companies like Klarna, Clearpay and Laybuy don’t carry out affordability assessments on customer, sometimes giving a few hundred pounds not knowing if they have the means to pay this back.

Used in the right way, Buy Now, Pay Later can be a good option to access cheap credit. However, it comes attached with a number of risks. If you fall behind with payments, you can be hit with late fees and even negative indicators on your credit file.

I’ve seen first-hand how people have been hooked in by this service, and I don’t think the advertising around this help.

Recently, I have been supporting someone who had to get new clothes for an interview – they didn’t have any cash and they weren’t due to be paid for a couple of days. They came across a well-known fashion brand offering items under the Buy Now, Pay Later, scheme. Unfortunately, this person didn’t get the job and stayed in receipt of state benefits, at this point they were struggling to manage anyway – and these additional payments just made things even harder.

Thankfully they engaged with our service so we could find a way to ensure they weren’t a cliff edge with their finances – our specialists teams have so much knowledge and over the years we have built up a catalogue of different funding pots to help people in all kinds of situations, for example, clothing for interviews, white goods and food. If we are made aware we will always make an effort to exhaust all options to ensure a client doesn’t have to make things even more difficult for themselves.

Thankfully there’s a lot of talk in the press at the moment about how the government are going to regulate this industry - so we’ll all have to watch this space and see what happens.

This column was written by our Senior Debt Adviser Dan Bebbington. Read his 'Money Matters' column every Tuesday in the Shropshire Star