Learn the art of buying now and not paying later
IN the last few years, a very old form of credit – ‘buy now, pay later’ (BNPL) credit – has had such a dramatic makeover that it’s almost unrecognisable from the old shop credit you might have used to buy a sofa on an interest-free deal in the past.
Lately, this new form has come in for a lot of attention, not all positive. And complaint levels are increasing, with around 5,000 complaints in just six months this year. So what’s the deal?
THERE ARE TWO MAIN TYPES OF BNPL DEAL:
OLD BNPL credit is the longerterm deal offered by retailers through their own credit schemes, which allows you to pay for goods over a fixed period of time, usually two or three years, though longer for ‘big ticket’ items.
These deals may come with an interest-free period where no interest applies if (and it’s a big if) you pay the full amount during this period. Otherwise interest applies. These deals are usually regulated.
New BNPL credit is usually provided by a thirdparty credit firm at the online ‘till’. It allows you to pay in a variety of ways for goods and services.
However, some deals are not regulated. The big firms in this sector are Klarna and Clearpay.
HOW NEW BNPL CREDIT WORKS
WITH money tight, there’s been an explosion in new BNPL credit deals in the last two years. So much so that it’s unusual to not have the option to pay this way when buying from a major brand online.
Try before you buy: This is where you have time – usually 28 days but sometimes as low as 14 days – to try goods before committing to buy them.
Of course, you can’t go out in a frock, then send it back, no matter what see on Instagram. These deals allow you to try things on, check goods out and see if they work for you before committing to buy.
However, if you don’t return the goods on time you could find you’ve bought them. Limited instalments: The most well-known form of BNPL deal works by letting you pay in a limited number of instalments interest-free. This means you can buy things up front that you may not have the money for in full at point of purchase. However, you have committed to buy.
Credit agreements: These deals are closer to the older BNPL deals in that you pay in instalments over a longer period and pay interest. This isn’t as high as some retailers charged in the past – it’s usually less than credit card interest, for example – but is still higher than a standard bank loan.
SOUNDS GOOD... SO WHAT’S THE PROBLEM?
THE problems occur when you can’t pay. While BNPL firms may not charge debt interest, Resolver’s users have told us they are often quick to pass on debts to debt collectors who have a whole range of penalties and pressure tactics. Many of the complaints we’ve heard have come from people who’ve had debts passed on for relatively small sums.
But the issue that’s proved most contentious is the way some retailers have sold these deals as lifestyle products rather than a financial commitment that has penalties. Many people have objected to retailer websites encouraging people to spend money they don’t have with little warning about consequences.
Others have highlighted how easy it is to get into debt with multiple retailers or lose track of what you’ve spent if you’ve got a number of deals running.
Ultimately, like most things, be cautious before spending money you don’t have – and seek help if you’re worried you can’t pay.
If you have a problem with credit, loans, or buy now pay later deals, Resolver can help. Get in touch at resolver.co.uk