Lifestyle choices? They’re just high-interest loans in drag

REMEMBER those deals you used to get to buy a sofa or new kitchen? Well ‘buy now, pay later’ credit is back with a vengeance. It’s had a makeover and you might not even know you’re entering into a credit agreement with huge interest.

Here’s what to watch out for.

WHAT IS ‘BUY NOW PAY LATER’ CREDIT?

IT’S been around for years, also known as ‘shop credit’ or ‘interest-free deals’. It was invented to allow people to buy larger items they might otherwise not have been able to afford.

The idea is you get a long ‘interest-free’ period, typically a year or two, where you pay no interest. If you pay off the loan in that time you pay nothing extra. But if you don’t, higher interest kicks in.

SO WHAT’S CHANGED?

Be careful with interest-free deals

BUY now, pay later deals work on a clever bit of psychology. We all think we can beat the system by paying off the goods in the interest-free period.

But lots can go wrong in life on the way and many of us end up paying higher interest, which often appears with little to no warning. Shops and credit providers know our intentions are good but we often fail to pay in time and they make a hefty profit off these deals.

ARE SHOPS RE-BRANDING CREDIT AND DEBT AS A LIFESTYLE CHOICE?

PEOPLE don’t like the idea of debt. But we do like choice.

That’s why these deals have been re-branded ‘lifestyle’ choices – ways for you to pay that are in your control.

They aren’t. They’re highinterest loans in drag. Don’t be fooled. Many loans don’t even say they’re a form of credit – just ‘different ways to pay’.

WHAT’S THE PROBLEM WITH THIS FORM OF CREDIT?

THE dirty secret with lots of these deals is that if you don’t pay off the full debt by the time the interest-free period ends, an often-hefty dose of interest goes on to the remaining sum – making it hard to pay back.

You should get a warning of when this will happen, but many people are surprised. It’s also hard to know when the interest-free period ends when you’ve bought multiple items from the same shop.

HOW CAN SHOPS AVOID THE SMALL PRINT?

CREDIT is regulated by the Financial Conduct Authority, which has introduced tough new rules. But shops aren’t making their obligations clear, so make sure you always find out:

■ WHEN you have to pay for goods to avoid interest.

■ HOW the shop notifies you that the interest will begin – and when.

■ AND if the interest will apply on the full amount borrowed.

WHAT DO THE NEW RULES SAY?

IN the bad old days, you could have been hit with interest on the full cost of the goods you bought, even if you only had a tenner left to pay! Now, the rules say:

■ SHOPS can’t charge you interest on the whole amount borrowed – only the amount outstanding when the interestfree deal ends.

■ THEY must make it much clearer how the deals work.

■ THEY must let you know the interest-free period is ending.

HELP, I’M IN TROUBLE WITH DEBT!

FIRSTLY, don’t panic. Call the credit company and ask them what they can do to help. If they aren’t helpful, make a formal complaint. You can also go to the financial ombudsman if the firm doesn’t play ball.

Make sure you complain to the shop too. Make your voice heard if you feel you’ve been treated unfairly or misled.

■ Help Resolver make businesses better by making a complaint at resolver.co.uk