Buy now, pay later: the dark side of instant credit


If you’re an avid watcher of ITV2’s Love Island, then you’ve probably heard of Klarna.

The Swedish platform is just one of many buy now, pay later (BNPL) schemes that’s been sweeping the nation in recent years.

The basis behind it is simple; if you find yourself unable to afford those new trainers or that dream bag, then you can use BNPL to allow you to order items and pay for them at a later date.

Adopted by multiple online retailers, including ASOS, Boohoo, Topshop, Schuh, JD sports and Cult Beauty, shoppers can choose from three options – pay for your order within 30 days, split it into three payments or set up a payment plan with the retailer themselves for anywhere between six months and three years.

As a concept, it seems like a great way to get yourself a whole bunch of clothes, accessories, return what you don’t like/need, and only pay for what you keep.

For those who’s purse strings are a little tighter, it can also eliminate the problem of waiting for refunds to hit your account.

But behind the pink exterior and campaigns dedicated to love and self-expression, there is a darker side to BNPL.

The facts

When you look at Klarna’s website, it states that one million transactions are made through their services each day, with 80m shoppers on board.

According to a survey of 2,096 people carried out by comparison website comparethemarket.com, one in five buyers have used BNPL initiatives within the past year.

It also found that one in five of them said their credit score was damaged as a result, with 40% not even realising that it could be affected by the scheme.

Given that this information is practically impossible to find on their website, this comes as no surprise to most.

BNPL providers have also recently come under fire for failing to properly warn their customers about the risks that come with opening credit.

This, in turn, has sparked concern that it is encouraging the younger generation to spend outwith their means, leaving them in debt they didn’t really know they were getting into.

It’s also been noted in the press that excessive use of BNPL could potentially lead to a dangerous reliance on other forms of credit to help with repayments.

And the research done by Compare the Market highlights how they can be great in the moment, but can have a long-term effect on your finances.

In a response to the research, general manager for Klarna UK, Luke Griffiths, said:

“Klarna does not report missed payments to the CRA in relation to these products.

“It is therefore not accurate to say that “Klarna’s ‘Pay later’ schemes damaging millions of shoppers’ credit scores.”

He then went on to claim: “To date, a customer’s credit score has not been impacted by using Klarna’s ‘Pay later’ products even if they have failed to pay on time.”

However, the company have previously made statements to contradict this, advising that they’re “open” about their lending policies and that all their products could affect your credit score.

What they don’t tell you

Most BNPL providers will market their products as interest-free, which is true for the most part – as long as you pay on time.

However, what most people don’t notice is what’s hidden in the small print.

Within their agreements, it’s written that you can be charged £12 each payment that you miss, along with another £12 for each time they send you a chaser letter.

If you continue to fall behind, they can even pass the debt to a debt collection agency, who will add even more charges and leave you with an even bigger bill to pay.

This is backed up in the findings from this research, as 51% believed BNPL schemes had contributed to their increased levels of personal debt.

So remember, no matter how fancy the marketing is or how great it makes you feel at the time, the money still needs to be paid. We advise to make sure you’ve done your research before you sign up, and only use if necessary.

If you’re struggling with debts, we can help. Our expert advisers are on hand to work through your debts so you can find a solution that works for you; all you need to do is call 0800 043 1320 or click below to be connected.

You could write off up to 75% of unsecured debt with our debt assistant.

Get debt help today

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