Advice Column: Buy Now Pay Later

Thursday 23rd May

As part of the Citizens Advice Exeter and The Express and Echo advice column this week we focus on buy now pay later schemes.

 I have been looking online to buy a new TV, and see the option to ‘buy now pay later’. I am attracted to this option as it will help me to spread the costs, but don’t really know much about such schemes. What do I need to look out for?

While it might be tempting to delay payment – and the adverts can often be very enticing and sometimes misleading – it often can be a slippery slope to being tangled in debt.

Buy now pay later agreements are also known as store finance. They’re a way for you to purchase goods on credit and pay for them usually after a set interest-free period, or in instalments. While you can use this payment method at some high-street shops, it’s more commonly used by catalogues and online retailers. Some agreements will let you pay after a set period of time (hence the name), while others will let you pay for your purchases in instalments (sometimes called ‘slices’).

Overall, 27% of UK adults have used these firms in the last 12 months, rising to 37% of disabled people and 45% of people with a mental health problem. Four in 10 of those who’ve used Buy Now Pay Later in the last 12 months are struggling to repay. A quarter of consumers regretted paying using these platforms, with the most common reasons being spending more than they can afford, and paying more than they expected.

This type of finance has existed for years, but recently, some companies have popularised it with younger consumers. These adverts will often not highlight the risks of paying in this way. Risks can include:

  • damage to your credit rating if you are late or missed a payment
  • charging high interest and fees if you can’t afford to pay what you owe on time.

The adverts sometimes target people on social media who might be less able to afford the items and encourage them to buy now and pay later. It’s not just the buy now pay later providers that do this, some online retailers, especially clothing retailers, do too.

Buy now pay later is very easy to use, with efficient technology and with low minimum spends of just £10. So it’s no surprise that lots of people are tempted to use it to pay for shopping. But it’s easy to not realise the massive negative impact it could have on your debt and credit rating if you don’t keep your repayments on track.

Exact charges vary by provider, but as a rule how much you could pay depends on the payment type you choose.

·        Pay in instalments This is where the total amount of your purchase is split into a few segments – typically three or four. You usually have to make one payment upfront and give the provider permission to take payment for the rest of the instalments later. If you miss these later payments you’ll be stung with pricey ‘late payment fees’. These fees will build up if you continue to miss payments.

·        Pay later This is where you delay payment for the total amount of your purchase for a set number of days – typically 14 or 30. You won’t have to give payment details upfront, but you will have to pass a ‘soft credit check’ before your purchase is accepted. When it comes to make payment you’ll usually get a reminder. But don’t miss a payment as it can be passed onto debt collection agencies if you don’t pay in time. This can be scary, especially if you’re vulnerable, and it can easily get very expensive.

·        Pay on finance This is the most traditional form of buy now pay later. You’ll have to agree to a formal payment plan upfront, you may be charged interest and you will be credit checked when you apply. Lenders should tell you the interest rate you’ll be charged before you take out the finance. If you miss payments you will be charged fees and there will be a negative impact on your credit report.

If you have made buy now pay later purchases it’s important you keep a record of how much you’ve paid, and when your payments are due. You should also draw up a budget to make sure you have enough money to make each payment; otherwise you could get caught out by expensive late payment fees.

 

If you have missed a payment contact your lender to explain your situation. You should avoid taking out more credit unless you know you can afford to pay it back.

 

For more information and advice go to www.moneyadviceservice.org.uk

 

The information contained in these articles does not constitute advice. Citizens Advice Exeter and The Express and Echo accept no liability for the information published. Citizens Advice Exeter is unable to respond to individual requests for advice through these columns. Copyright Citizens Advice. For the most up-to-date information, please visit www.citizensadvice.org.uk