We’re stepping up to warn of the threat that Buy Now Pay Later (BNPL) schemes pose to consumers.
Companies such as Klarna, Laybuy and Clearpay allow consumers to make online purchases and spread the cost through instalments over an agreed period of time. Retailers partner with Buy Now, Pay Later providers to offer this payment service to customers. In recent years, this has become the preferred form of payment for millions in the UK.
Rachel Duffey, our CEO, has had her say on Buy Now Pay Later schemes and the impact they have in everyday life:
“Whilst some Buy Now, Pay Later schemes can be a convenient way of spreading the cost of purchases at an expensive time of year, we think they need to be approached with caution.
In a recent survey of over 1,000 of our 18-34 year-old clients, 73% of them said that using a BNLP scheme had contributed to a debt problem. Furthermore, we’ve certainly seen a worrying increase in the number of young people coming to us for debt advice.
Klarna’s introduction to credit does not encourage budgeting and supports the instant gratification approach to purchases that people may not be able to afford. It’s very easy to get seduced by how appealing these payments options are, especially for younger generations. This age group, arguably their target audience, have less experience with managing money and don’t fully understand just how damaging irresponsible borrowing can be to their credit score.
We’re calling on Klarna and other Buy Now, Pay Later lenders to consider making their terms much clearer at the outset. Some retailers offer BNPL as the default payment option and it is all too easy to enter into this type of credit agreement without the implications being fully understood by the consumer.
Adverts with the taglines ‘I’ll choose when to pay’ and ‘No Interest. No fees. Ever.’ are misleading and give consumers a sense of perceived power and freedom to borrow without any consequences.
There is no need for a credit check, as we would typically expect to see for this type of credit, before a customer is offered this option for payment. This can lead to confusion about the powers that Klarna and other Buy Now, Pay Later schemes then have to recover the debt in the event of non-payment, including details being passed to a debt collection agency.
It’s a worrying thought that these schemes could cause a significant rise in debt problems in the coming months and years. We know that 30% of our clients wait between 3-4 years before seeking help, so this pattern of purchasing can commit young borrowers to a decade of debt.
We think both the regulators and the service providers themselves need to step up now to ensure this type of lending doesn’t cause financial harm to future generations.”