Money matters: Beware the risks of 'Buy Now, Pay Later’

The last couple of years has seen the rise in prominence of companies offering 'Buy Now, Pay Later’ (BNPL). Once a niche form of credit, these deals have exploded during the pandemic. They often come with slick advertising campaigns, offering consumers the chance to get items quickly and cover the cost at a later date.

Buy Now, Pay Later is a simple concept: instead of you paying a retailer for goods or service in full when at the checkout, the provider pays the retailer for you. You then repay the provider over a few weeks or months, meaning you can spread the cost of your shopping.

Sounds fine… but some companies don’t carry out affordability assessments on customers, sometimes giving a few hundred pounds not knowing if they have the means to pay this back.

Used in the right way, Buy Now, Pay Later can be a good option to access cheap credit. However, it comes attached with a number of risks. If you fall behind with payments, you can be hit with late fees and even negative indicators on your credit file.

I’ve seen first-hand how people have been hooked in by this service, and I don’t think the advertising around this help.

Recently, I have been supporting someone who had to get new clothes for an interview – they didn’t have any cash and they weren’t due to be paid for a couple of days. They came across a well-known fashion brand offering items under the Buy Now, Pay Later, scheme. Unfortunately, this person didn’t get the job and stayed in receipt of state benefits, at this point they were struggling to manage anyway – and these additional payments just made things even harder.

Thankfully they engaged with our service so we could find a way to ensure they weren’t a cliff edge with their finances – our specialists teams have so much knowledge and over the years we have built up a catalogue of different funding pots to help people in all kinds of situations, for example, clothing for interviews, white goods and food. If we are made aware we will always make an effort to exhaust all options to ensure a client doesn’t have to make things even more difficult for themselves.

Thankfully there’s a lot of talk in the press at the moment about how the government are going to regulate this industry - so we’ll all have to watch this space and see what happens.

For more imformation about The Wrekin Housing Group visit wrekin.com

In reply to this article a spokesman for shop now, pay later firm Klarna said: "We perform robust eligibility assessments including a soft credit check on each and every purchase to ensure we only lend to people who can pay us back. Our business loses out otherwise as we don’t charge fees or interest. Using Klarna isn’t guaranteed and we restrict access to our services after missed payments to prevent debt accumulating.

"We release small amounts of credit linked to a specific purchase and if a customer shows they can shop responsibly and meet repayments, then that limit increases gradually. In fact, in the UK our average order value is £75 and about 40% of our customers repay early.

"We’re strengthening credit checks with our Open Banking trials in the UK. This means consumers will be able to securely share income and spending data from their bank accounts to confirm they can afford future repayments. This supports Klarna’s commitment to financial inclusion by giving safe access to low-risk credit for those individuals with a limited conventional credit history, which is reliant on the use of traditional credit and does not reflect how people are choosing to make payments today."