Santa’s little debtors? Finance counsellors urge shoppers to be wary as stores flood High Street with buy now, pay later deals
Christmas shoppers are being warned of the dangers of racking up debt under new “buy now, pay later” deals being offered by big stores.
The offers, which demand far fewer credit checks than store cards, give customers up to 30 days to pay for the goods they buy.
Marks & Spencer has just become the latest big retailer to offer these deals to online customers, alongside other major chains such as TopShop, H&M, Urban Outfitters and Schuh.
The services are particularly popular with shoppers in their 20s – but debt charities fear a ticking timebomb of financial trouble.
Lawrie Morgan-Klein from debt charity StepChange Scotland, said: “There is potential for this to become a go-to Christmas payment choice, along with credit cards and store card credit.
“Yet deferring payments into the future can encourage people to buy more – which is exactly why retailers are increasingly offering these options, under the guise of convenience to consumers.
“Last year, we helped 30,000 people in Scotland with their debts, and this year the number is likely to be higher.”
Instalment schemes are now booming, with customers attracted by offers to spread out payments without using a credit card.
Buy now, pay later firms allow people to pay for their online shopping in a number of instalments spread over several weeks or months, or in one payment at a later date.
One of these companies, Klarna, only conducts a limited credit check on potential customers.
The firm, based in Sweden, is valued at £4.5 billion and has more than 4,500 retail partners worldwide.
The company tells customers on its website: “A soft credit check does not affect your credit score/rating and is strictly between you and us; this is not visible to other lenders.”
However, there are fears that people who may not be in a position to afford goods are being tempted to make purchases as they can defer final payments until payday. Jane Tully, director of external
affairs at the Money Advice Trust, the charity that runs National Debtline, said people ran the risk of being contacted by debt collection agencies and could have their credit ratings affected if they failed to make scheduled payments.
She said: “Buy now pay later schemes may provide flexibility for some people but it can also be an expensive way to borrow.
“If you are unable to pay and exceed an interest-free time limit, charges may soon rack up.”
She also urged firms offering these services to explain better the risks to customers in their adverts.
From this month, M&S’s online shoppers are being offered a deferred payment option on purchases over £30 across its clothing and home products.
The retailer has partnered with buy now, pay later company Clearplay. M&S said the move was the latest step in its “far reaching transformation” to become more relevant to customers.
Kirsty Ward, director of M&S bank and services, said: “We are committed to providing our customers with seamless, easy and convenient ways to pay, and that’s why we’ve introduced this fully integrated and interest-free option to help spread the cost of shopping.”
As well as Clearplay and Klarna, other popular buy now, pay later companies whom retailers have joined forces with include Afterpay and Laybuy.
Among their partners are fashion retailers such as JD Sports, Quiz, Pretty Little Things and Boohoo.
Ewan MacDonald-Russell, head of policy at the Scottish Retail Consortium, said many retailers were simply now offering innovative payment options.
“These enable customers to spread the cost of purchases over a longer period – a choice that many customers find useful in the build-up to the festive season.
“Of course, retailers work hard to keep down prices and to ensure shoppers are given all the necessary information so they don’t inadvertently overstretch themselves.”
Customers in Scotland have been quick to take up interest free deferred payment schemes but some admit to being in the dark about the potential pitfalls.
Luke Griffiths, Klarna’s UK general manager, said the company is clear about the terms of its pay later products.
He said: “It wouldn’t be responsible for us to lend to everyone. We do eligibility and affordability assessments.
“We have a dedicated team in place to support the very small minority of our customers who fall into financial difficulty.”