The INSTANT CREDIT CRAZE that can leave you with bags of debt

So many shop price tags now offer payment by instalment. But beware, debt collectors are waiting to pounce if you fall behind...

FoR Yasmine Ibrahin it began with a pair of £90 trainers from ASoS. The Nike Air Maxes were her first purchase using Klarna, one of the increasingly popular ‘buynow, pay-later’ payment providers.

But it was far from her last. Soon the English student, then 21, found herself spending around £100 on clothes and bags using Klarna every fortnight.

‘I just couldn’t believe that I could have it now and pay later,’ Yasmine says. ‘It was just so easy.’

So easy that over the past three years she has spent between £5,000 and £6,000 this way. Now 24, despite earning a healthy salary — £28,000 plus commission — in her first graduate job as a business development manager for an events company, Yasmine’s struggling to control her finances and shopping habits.

‘My spending’s gone up drastically since I’ve been using buy now, pay later, says yasmine, a student at Sussex University.

‘It becomes a vicious cycle. You use it once and then you have to use it the next time because the money for the last thing you bought has just come out of your account.’

The chances are if you’re over 50 you have not yet heard of Klarna, Clearpay and Laybuy, the main players offering online ‘buy-now, pay-later’ payment options at thousands of stores such as ASoS, JD Sports, Topshop, H&M, Boohoo and Pretty Little Thing.

Yet with Marks & Spencer offering Clearpay on its website since just before Christmas, and increasing numbers of online businesses seeing it as a way to attract precious customers, it is likely that you will soon see it at a check-out, if you haven’t already. Estimates put the number of UK users at around seven million.

Buy now, pay later is also becoming available in store, too. Some chains such as H&M already allow people to use Klarna if they have the store app on their phone, while purchases through Laybuy — whose stores include JD Sports — can be done in store or online.

At first glance buy-now, pay-later services sound relatively sensible, particularly for cash-strapped millennials who tend not to have credit cards.

THEY are sold as an interest- and fee-free way to put off or break down payments if you’re feeling a bit short or plan to return much of your order and don’t want to pay for what you don’t keep. There’s lots of glossy, youthful marketing and an emphasis on making shopping ‘fun’.

Klarna frequently tags Love Island contestants in its Instagram posts, while Clearpay’s website looks more like a store rather than a financial services business, with a rundown of its most popular retailers. Laybuy’s home page features photogenic 20-somethings who could be partying at a music festival.

These firms also pitch themselves as helping consumers be in control. As Klarna says on its website: ‘You can manage your cashflow without maxing out your card!’

But there are concerns that the opposite is happening and they are encouraging young shoppers especially to spend beyond their means and take on too much debt.

A quick look on social media and it’s easy to find posts such as: ‘Feel like I’m gonna be in debt with Klarna for the rest of my life’ or ‘Was online shopping yesterday and have no money so used Clearpay. I’m already in debt so why do I do this to myself?’.

As Sue Anderson, of debt charity StepChange, says: ‘It’s all too easy to overestimate what you can afford with these types of services, particularly when the options to pay later or divide payments allow you to defer thoughts of affordability.’

So how does the new generation of buy now, pay later work? With Klarna you can choose to pay off your bill completely, up to 30 days after purchase, or there’s also the option to pay it off in three instalments — the first when you buy, the second 30 days later and the third 30 days after that.

With Clearpay, payments are split into four. The first goes out at purchase and the remaining three payments are taken from the card you paid with fortnightly after that. Purchases made through Laybuy are paid off in six weekly instalments.

It sounds simple enough — but what happens if things go wrong and you miss payments is another cause for concern.

Debt and consumer charities are worried that people are paying high fees and potentially damaging their credit score, which can affect your ability to get a mortgage or a phone contract — consequences that are not always made clear in advertising. Last year Klarna was criticised for adverts that claimed: ‘No interest. No fees. Ever.’ In reality, unpaid bills may be passed to a debt collection agency. Anecdotally, people say their credit scores have been affected after missing payments — though the firm insists credit scores are not impacted if you fail to pay on time.

And while Clearpay says ‘buy what you want today, pay for it in four instalments interest free’, late fees can be charged if shoppers miss payment deadlines.

For each order below £24, a maximum of one £6 late fee may be applied per order. For each order of £24 or above, the total of the late fees that may be applied are capped at 25 pc of the original order value or £36, whichever is less.

For someone who has used credit to pay in £10 instalments, this could represent a significant sum. Again, debt collection agencies may be called in and credit scores potentially affected.

According to its website, Laybuy charges late fees of up to £12 per missed instalment, and debt collection agencies may be called in.

In a recent survey by Compare The Market, one in ten interviewed said they did not know that missing payments using buy now, pay later could affect their credit score.

Complaints service Resolver has seen a boom in complaints from buynow, pay-later customers — more than 10,000 in 16 months. Martyn James, from Resolver, said: ‘The unprecedented number of complaints Resolver is seeing suggests that retailers and credit companies are not nearly being clear enough about how buynow, pay-later credit works and the consequences when people miss a payment deadline.

‘This needs to be addressed before it spirals out of control. If