Should you be wary of ‘buy now, pay later’ schemes?

By Mr Bankruptcy

30th March 2021

The popularity of ‘buy now, pay later’ schemes has soared during lockdown, with 5 million people in the UK taking on this kind of financial commitment last year. Two questions arise in my mind: Why have they become so much more popular and – more importantly – what do borrowers need to watch out for?

The idea behind ‘buy now, pay later’ later schemes is simple; you pay for items that you purchase in instalments, over a number of weeks, in order to spread the cost. If you can maintain your repayments, then there’s nothing intrinsically wrong with these schemes. There are no fees for using these services and they are interest free – a cheap form of credit. You can access these services online and in-store, so they are easily accessible.

With so many people sitting at home, bored and with access to online shopping, it’s not surprising that the popularity of these schemes has taken off during the pandemic. Last year saw ‘buy now, pay later’ services account for £2.7 billion in sales.

Why are these schemes raising concerns?

But with an estimated £4 in every £100 currently being spent in the UK on ‘buy now, pay later’ schemes, concern is mounting that this type of loan is too easy a way to build up debts unawares. In addition, one in ten people who use these services are already in debt arrears. The very ease of their use can distract borrowers from the consequences of these schemes:

• Fees are incurred for late or missed payments, which quickly add up.
• Your credit file may reflect any poor payment history caused by these schemes.
• If your case is passed to a debt collection agency, bailiffs may become involved.
• Different schemes have different fee structures, and you must use the scheme offered by the vendor. This makes understanding fee risks potentially more confusing.

Changes is on the horizon

The concern over the rising popularity of these schemes and their potential for leading people into unmanageable debt has forced HM Treasury to announce that ‘buy now, pay later’ schemes will become regulated, which in my view is great news for consumers:

• ‘Buy now, pay later’ lenders must now conduct affordability checks before lending to you.
• Customers need to be treated fairly if they struggle to repay their loan.
• Customers will now have the right to complain to the Financial Ombudsman Service.

These regulations are to be welcomed but they are also a clear reminder that unless you have a plan to repay any kind of loan, then it can always put your financial situation in peril.

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