Buy now, pay never? Controversial firms help shoppers buy items they can’t afford

Shoppers commonly use “buy now, pay later” services to fund spending sprees on items they cannot afford, a debt advice firm has warned, as pressure mounts on the controversial sector.

Consumer debt has been brought into sharp focus during the coronavirus crisis as many people have lost their jobs or seen their income fall. Some of these workers have sought to borrow cash so they can maintain their lifestyle.

With banks restricting credit card and personal loans, buy now, pay later has become a popular way for shoppers to purchase clothes and other items without having the funds in their bank account.

Freeze Debt, a debt management app, has warned that 60pc of users do not regard this borrowing as “real debt”. It said that four in 10 people who shopped via buy now, pay later used it to fund spending sprees on items they could not otherwise afford, rising to six in 10 among millennials.

Harjit Moore, of Freeze Debt, warned that the sector was “irresponsibly facilitating unsustainable spending habits”. Its research found that shoppers most commonly used buy now, pay later to fund spending on technology, and shoes.

A separate report by money.co.uk, a price comparison website, said the average debt owed to buy now, pay later firms was £176.05 per user. Its survey found that one in five shoppers admitted using these kinds of loans as it meant they would not have to worry about paying for items until later on.

It said that Klarna, Clearpay and Laybuy were the providers most commonly used by British shoppers and that retailers across many sectors were now promoting buy now, pay later to their customers.

The growth of the sector looks likely to continue. Laybuy, which recently signed a major sponsorship deal with Premier League club Manchester City ahead of the new football season, announced plans to launch a credit card-style account in Britain.

The Australian firm said it would offer a digital card that can be added to services such as Apple Pay, Google Pay and Samsung Pay. Customers will be able to pay in six weekly instaltravel, clothes ments. However, unlike some other firms in the sector, Laybuy will not run a credit check before each purchase is approved. Instead it will be more akin to a credit card, where the customer undergoes a check when the account is opened and given a spending limit.

The account will be interest-free but users will be hit with late payment charges if they fail to repay. Debts may then be passed to collection agencies.

The money.co.uk report said a diverse range of retailers were now offering some buy now, pay later services. In the fashion sector, clothing brand Nasty Gal had the most mentions of buy now, pay later on its website with 46. Marks & Spencer was the homeware brand with the most mentions of these services with 34, while in the technology sector Samsung had 33 references.

Salman Haqqi, of money.co.uk, said buy now, pay later could trap customers in a cycle of debt.

“Their quick and easy sign up process, minimal credit check and youthful marketing appeal could be causing shoppers to sign up and spend more than they can afford without understanding the full risk,” he said.

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