Consumers Should Be Warned of Buy Now, Pay Later

Buy Now Pay Later

The Buy Now, Pay Later (BNPL) industry has quadrupled in size in the last year in the UK and the market is said to be worth around £2.7 billion.

From kitchens, clothing and home gym equipment, the ability to purchase something online immediately and pay later is a very appealing premise.

Whether it is the likes of Klarna, ClearPay, LayBuy or AfterPay, the customer can purchase the goods today, but make repayments over 12 months for the item, sometimes interest-free if repaid on-time or rates of 39.9% APR if repayment is overdue.

But a recent report from FT Partners has highlighted the potential dangers of Buy Now, Pay Later – and those struggling to pay are facing huge debts to overcome.

Although used by an estimated 14 million Brits in a consumer-driven lockdown period, 39% of customers used BNPL without realising and 42% did not know what they were signing up for, the studies show.

This becomes an issue when customers cannot make repayments – and whilst it can be interest-free if paid on-time, the late fees start to add up if payment is not made, much like a credit card.

The interest rate of 39.9% APR is on par with the more bad credit financial products out there and is deemed very high, especially when credit cards are around 18% and personal loans start from just 3%.

Labour MP Stella Creasy, who is often very outspoken on the subject of high cost loans, has said that the BNPL is a ‘financial scandal waiting to happen.”

Dan Kettle of finance provider Pheabs commented: “Buy Now Pay Later is a very attractive proposition. Even if you have the money to put a new bed or set of dumbbells, who wouldn’t prefer to pay back at a later date?”

“Ironically, most people buying goods online will have a credit card anyway which is free to use if you pay off on-time, so they are pretty much getting a 30-day payment holiday either way. But with good marketing and the human desire to pay for things later, it is an industry that has exploded in recent years, probably thanks to lockdown as well.”

“But people do need to be careful with Buy Now Pay Later, because the late fees are very high if you cannot afford them, pretty much on par with an unauthorised overdraft or a high cost loan, even if their products yield very high APRs on the surface.”

“This is yet another industry which has grown faster than the regulators can keep up – and no doubt we will see some stricter checks or regulation from the FCA to follow in the coming years.”