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Buy now, pay later: a timebomb for the impulse shopper

Just when we thought online shopping couldn’t get any easier, the soaring availability of buy now, pay later (BNPL) schemes means that we don’t even have to pay for our purchases upfront anymore.

What is buy now, pay later?

Much like shopping from a traditional catalogue, BNPL schemes such as Klarna, Clearpay and Laybuy allow you to purchase goods on credit and pay for them after a set interest-free period, or in instalments.

For some of us, BNPL payment options are a convenient way to shop as it lets us ‘try before we buy’.

This means if we order clothes or shoes, that we no longer want or don’t fit, then we can return them before the first payment is taken.

While for others, having flexibility about when to pay is handy as it means not having to wait until you have the cash in your bank account before shopping.

For people looking for the best bargains and deals that are only available during a limited timeframe, this means that they need not miss out.

However, for some shoppers, the fact that it’s possible to use more than one BNPL provider at the checkout without their mounting debts being flagged to other firms or lenders could have long-term consequences. Failure to repay the debt can result in a damaged credit score.

A fifth of shoppers said that they'd be unable to meet repayments without borrowing more money

Buy now, pay later products have rapidly increased in popularity, with transactions tripling in 2020 as the pandemic drove more online shopping. Research from comparethemarket.com shows that 58% of 18-24 year oldshad used BNPL more since the pandemic began with nearly a fifth saying they’ve missed at least one repayment in the last 12 months.

Over Christmas 2020, spending on these schemes rose by 5% to an average of £211 per customer, even though almost 10 million people were furloughed at some point last year and 750,000 have lost their job.To make matters worse, a fifth of shoppers said that they'd be unable to pay back Christmas spending without borrowing more money.

New protection on the horizon

The consumer website Resolver reported that it had received 17,500 complaints about BNPL services in the last two years.

It said that some examples of complaints include customers being chased for payment, despite items already being returned and accepted by retailers and also being charged late payment fees for returned items.

Alice Tapper who runs the popular Instagram account Go Fund Yourself led a campaign calling for urgent changes to be made.

Alice argued that consumers need greater protection when things go wrong and demanded an end to “confusing” and “emotionally manipulative” adverts.

“The objective was never to suggest that these products are all bad,” she explained. “It was the hundreds of people who shared their story with the campaign who made it painfully clear that the lack of regulation is at the expense of consumers, particularly the young and vulnerable.”

In February, it was announced that BNPL agreements will be brought into regulation by the Financial Conduct Authority (FCA). This means BNPL firms will have to conduct proper affordability checks before lending and ensure customers are treated fairly if they are struggling to repay the loans. (The FCA is the organisation that oversees all banking and finance regulation in the UK.)

It will also give consumers the right to complain to the Financial Ombudsman Service if things go wrong. (The Financial Ombudsman Service is there to resolve any disputes you may have with a financial organisation.)

The decision comes after months of campaigning from MPs, consumers and finance experts who accuse some of these firms of misleading advertising, confusing terms and conditions, and encouraging customers to spend more than they can afford.

Don’t forget that while you may think that this article is brilliant, it is intended for information purposes only and should not be mistaken for financial advice or recommendations.

3 things to do
right now

1

Before you buy, ask yourself if you would have made the purchase if BNPL hadn’t been an option.

2

BNPL repayments are normally fortnightly or weekly so have a repayment plan in place.

3

If you need help with debt, StepChange and the Debt Advice Foundation are charities that give free, confidential, impartial advice. The Money Advice Service, an independent service set up by the government, also offers free and impartial advice through a free phone line or via online chat.

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