Ever broken a laptop and needed a new one ASAP? Want to try on that T-shirt in black and in blue before deciding? Or maybe you can’t wait to get your hands on the latest Xbox? If so, chances are you’ve considered using a buy-now-pay-later scheme at the checkout.
And you’re not the only one – over 5 million people in the UK have used BNPL services in the last year, totalling £2.7bn worth of sales.
Spearheaded by companies such as Klarna, Clearpay and Laybuy, BNPL schemes have seen a huge surge during the pandemic and are completely changing the way we shop online.
The schemes work by allowing you to spread your payment over a greater time period, making it feel like you’re lessening the blow to your bank account. Klarna, for example, offers either a 30-day deadline or the option to split your payment into three equal monthly instalments. There's no credit check and you don't even need a credit card to access the service.
The advantages are obvious: more flexibility, no initial interest rates or hidden fees, no card details needed at the checkout, and less time spent saving before your purchase arrives at your door. BNPL schemes are good for business as well, since consumers are more likely to buy products if they don’t have to pay the full amount upfront.
But for every yin there’s a yang. And for every quick and easy purchase, a greater risk of accruing debt.
The main issue is that when that initial barrier is broken down, the payment no longer feels like a necessity. With the obstacle taken away, we tend to buy more items and go for more expensive things. In fact, 1 in 3 shoppers used a BNPL scheme to make a purchase they otherwise couldn't afford.
While BNPL schemes are very good at marketing desirable lifestyles with attractive campaigns, things get rather murky when it comes to potential consequences. Miss a deadline and the interest rates skyrocket to around 18.9% APR, your outstanding balance is handed over to a debt collector and you risk damaging your credit score.
Citizens Advice have warned that the schemes can be a slippery slope into debt, and found that 41% of people who used BNPL in the last 12 months have struggled with making a repayment.
As with all credit products, BNPL schemes can be a precarious route to go down, especially for those who are already struggling to meet financial commitments.
So we came up with a simple and easy checklist to think about when buying online.
This allows you to take more control over your finances and lessens the risk of falling into the red.
Then decide whether you can afford the item. Check out this post if you're unsure about calculating your budget.
Read the small print to avoid the big costs.
to ensure that you meet the payments. Put them a few days before the deadline to lessen the stress.