Expert Stephanie Hawthorne’s latest financial advice
Stephanie Hawthorne, award-winning financial journalist, writes for us.
ISN’T it amazing how the world comes full circle? Our parents would eagerly await the next edition of the Littlewoods catalogue and go on a spending splurge, often financed by hire purchases nicknamed “the never never”, as it seemed like a lifetime before you actually owned the goods.
Today’s millennials are just as fashion conscious, with equally tiny budgets.
They also want the instant gratification of an expensive dress or perfume, but often can’t stump up all the money in one go.
Their go-to is “buy now, pay later”. Available in store or online, this is an easy way to buy goods on credit and pay for them in regular interest-free instalments or after an interest-free period.
BNPL providers include Klarna, Clearpay and Laybuy.
Klarna’s website enthuses: “Spread the cost of your purchase into three interest-free instalments. The first payment is made at point of purchase with remaining instalments scheduled automatically every 30 days.”
When it comes to payment, BNPL providers normally send you a reminder. Ignore this at your peril: if you miss a payment the debt can be passed on to credit agencies.
Anyone using BNPL should keep their own record, particularly of when the payment dates are due.
Indeed, the “try before you buy” pitch is seductive.
With 30 days to pay for your online order, you can order a wardrobe full of clothes to try on and return, only paying for what you keep, and usually without the hassle of waiting for refunds.
BNPL can often be used with low minimum spends of just £10.
This sounds like the shoppers’ utopia, but the ease of credit means particularly vulnerable students on low budgets may be tempted to spend more than they can afford as there is no compulsion to undergo affordability checks.
BNPL providers will only do a soft credit check (that means other providers, including other BNPL providers, don’t know you have applied for credit). In this way, you could quickly rack up a debt of £1,000.
Unlike many financial products such as credit cards, BNPL is not regulated by the Financial Conduct Authority if interest is not charged. But it does give consumers an extra credit choice.
If you have to choose credit, check what is best for you. Overdrafts or credit cards can sometimes be a better option.
Bank borrowers, if they have a problem, can take it to the Financial Ombudsman for free. This option is not open to BNPL users who must use internal complaints procedures.
Some credit cards offer cash back on expenditure, or air miles. You may be able to get a 0% deal or 0% overdraft for an initial period – but beware of steep charges thereafter.
These can be very expensive, around 20 per cent a year or more if you don’t pay off the balance on time.
If you use a credit card for purchases of £100 and the goods are not delivered or are faulty or the company goes bust, you can get your money back under section 75 of the Consumer Credit Act.
The pandemic and lockdowns have dented many people’s finances, especially those who have been made redundant or placed on furlough.
If you’re worried about making repayments, get in touch with your BNPL lender.
The sooner you get help, the sooner you will be back on track.
But better still, avoid debt, pay on the nail or ask yourself, “Do I really need the latest fashion?”
Perhaps it’s time to return to thrift and bring back the lost art of saving. ■