Buy now pay later credit schemes have been rebranded to convince younger consumers they are making ‘lifestyle’ spending choices.
These types of loans fell out of favour as they gained a bad reputation. They are now on the rise again and targeted at a new technology aware generation. Buy online at the click of a button and don’t pay straight away. Wait 9 months and then spread the cost. These are the sort of loans that are luring a whole new generation into debt.
Buy now pay later schemes blamed for a growing rise in consumer debt.
These Buy now, pay later types of loans are causing concern. More and more people are being lured into high cost debt. Debt they may struggle to repay. Ros Altmann, Campaigner and former pensions minister said,
“Financial resilience across the population is
weakening, debt levels are rising and if too many customers are unable to repay
their debts in future, we could see a repeat of the financial crisis.”
Martyn James from
the complaints website Resolver said,
“They’re high-interest loans in drag. Don’t be fooled. Many loans don’t even mention that they’re a form of credit. It’s ‘different ways to pay.”
In October, Marks & Spencer was the latest retailer to announce a buy now, pay later service on its website to attract customers and boost pre-Christmas trade.
How do Buy now pay later schemes work?
would have many months or even years to pay back their loan. In some cases now,
that can be 30 days and for much smaller amounts. So, if someone takes out a
series of little loans they can quickly lose track of how much they owe and
when they have to repay it, risk running up interest payments.
The Financial Conduct Authority (FCA) announced new rules
earlier this year to deal with one of the most controversial elements of the
The main concern of
the FCA is charging interest on the whole sum.
This means consumers could pay interest on the full amount borrowed even
if they had paid off part of it. For example, if there was £200 left on a deal
where £1,000 of goods were bought with a 40% rate, the person did not pay £80
interest but £400.
The new FCA rules mean firms can no longer charge on the whole amount borrowed, only the parts outstanding.
Problems and pitfalls with Buy now, pay later schemes.
continued to point out how easy it is to “sleepwalk” into these types of credit
as they don’t feel like loans. This is especially the case online where a box
can be ticked to say that terms have been read.
Problems start are
when people take out multiple loans and get confused about what to pay when. It
is also much easier and quicker now for loans to be approved resulting in
consumers being able to get credit while they are still in store.
Sara Williams of
Debt Camel said:-
“In the weeks before Christmas, (using Buy now,pay later) can be very seductive. But it stops feeling like ‘real money’, and you have to be very disciplined not to spend more than you really wanted to. It can be too easy to accumulate an amount of debt you can’t pay in the few weeks and months allowed before interest is added.”
How younger consumers can be drawn into a debt trap.
Because of the speed with which Buy now pay later schemes have spread, concern has been raised at how younger generations are being affected. Many retailers selling “fast fashion” now offer credit options. Some shoppers have found themselves in debt as a result of not returning goods on time.
Eileen Adamson, founder of financial coaching site Your Money Sorted, says it promotes poor financial decision making, which can lead to problems in later life.
“Many of these transactions are for relatively small amounts, meaning that we don’t give them much thought, before purchasing. Imagine delaying payment for five purchases of £30, leaving you owing £150. These small purchases are easy to ‘forget’ and each time you look at your bank account, you could think you are £150 better off than you actually are.”
“This can then lead to spending more money, because you feel flush. If this pattern is repeated regularly, then before long you will find yourself being unable to afford the repayments. It’s just too easy to spend more than you can afford, especially when the companies actively encourage you to buy multiple items, and return them if they don’t suit. We all know that this is just another way of encouraging us to buy more, and thereby increase their profits.”
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