It’s can seem like a quick win when you want or need something urgently – but ‘buy now, pay later’ (BNPL) schemes can haunt your finances several months and years down the line.
Over Christmas alone, on one in four people turned to this kind of credit – spending a whopping £2.3 billion on credit to fund their festivities.
Charities fear this will lead to a wave of charges, with problem debt snowballing across the country. Using firms such as Klarna, Clearpay and Laybuy allows shoppers to buy now and pay back what they owe in installments but just one missed payment can lead to increased costs and unmanageable repayments.
A previous campaign by one of these firms was even banned for “irresponsibly” encouraging customers to buy on credit during the pandemic.
Suited towards young millennials, Klarna says its average purchase for BNPL is products between £60-70, predominantly used on online luxury items.
However, this is even more alarming when you consider that Klarna’s average customer age is 33, and its biggest growing market is 40-54 year olds.
For many people, like mum-of-two Melody Chisholm, BNPL often feels like the only option, especially after she was furloughed last year and suffered a drop in wages.
She says: “I was really struggling at Christmas, so had to use my Argos card or the kids would hardly have had anything.
“There’s the guilt, if I didn’t use buy now pay later the kids would literally have had nothing.
“But I’m still paying back Christmas 2019. I’ve got myself in a rut because I’m always paying something back and I feel I will never get out of this vicious circle.
“I have also used Klarna when shopping and, yes, I have taken out more than I can afford.
“Thankfully, I always pay them back but it’s hard going. It can be draining being in debt all of the time and you can feel like a burden on the family because you then need to ask for help.
“Mentally, it’s not good being in that position. One day, I will get out of this debt and I will make a promise to myself never to get sucked back into it again.”
Expert money advisers are urging people to act quickly and seek early advice if they feel their debt is, or may shortly, become unmanageable Regardless of how much you owe, there is a solution for everyone. Christians Against Poverty (CAP) says, on average, people wait years before they seek financial help, due mainly to feelings of shame and embarrassment, not knowing where to get help, and fear. But when not addressed, problem debt can quickly become overwhelming.
Where to go for free, confidential debt advice
Recent news that the Government will be looking at how to regulate BNPL schemes has been welcomed.
Sharon Bell, Head of StepChange Scotland, says: “Buy now pay later services are often marketed as a source of convenience but the financial commitment should not be underestimated – it’s important to remember that the main benefit to retailers of offering these services is to sell more goods.
“It’s essential that these services and retailers give clear, plain English information for customers, and regulators need to continue to keep a close eye on how well consumers understand the types of services they’re being offered at the online checkout – especially those that could have the potential to see them build up debt.
“Among StepChange clients, those who have BNPL debts frequently have eight or nine other debts, and they are typically young, with more than a third aged under 25, which is particularly concerning alongside the disproportionately high number of young people StepChange has been seeing in recent years.
“In the meantime, consumers can play their part by actively looking into the costs they might face if they choose to defer payments through these services. If anyone feels they are at risk of problem debt, seeking out debt advice from StepChange or another free provider is advisable.”
What to do if your coronavirus payment holiday is coming to an end
If you applied for a payment holiday due to coronavirus, that will likely now be coming to an end and repayments will restart automatically.
Now’s the time to get on top of the options available to you, especially if you’ve suffered a drop in income.
One of the first steps in dealing with any debt is to speak to your lender and this also applies to BNPL schemes such as Klarna.
A spokesperson from Klarna said: “We recognise that financial circumstances can change and encourage anyone with concerns to get in touch. We have a dedicated team who are happy to work with customers to find a solution which works for them.
“We want to make it as easy as possible to get in touch and operate on a wide range of channels — 24/7 chat in app, email or phone. Additionally, and in line with FCA guidance, Klarna has enhanced support for consumers who may be experiencing payment difficulties as a result of Covid19, including payment holidays on Pay later products.
“We take the wellbeing of our consumers extremely seriously and are committed to ensuring that they are able to meet their payments.”
If you’re still experiencing financial difficulties, you might still be able to apply for a payment holiday – you can apply or extend a payment holiday for up to six months in total.
The deadline to apply for a payment holiday has been extended to 31 March, 2021.