With a surge in companies offering buy now, pay later (BNPL) at the checkout, whether online or in store, the Consumer Watchdog, campaigners, and MPs are scrutinising their intentions and whether they should be as readily available as they are.
The pandemic forced many high street shops to close and adapt to their consumers new way of buying, which seems to have caused an increase in the number of customers using options such as Klarna – a company who saw their client base grow circa 3 million in 2020!
What is buy now, pay later?
Essentially, buy now, pay later is self-explanatory, but some providers offer different options. Klarna’s service offers the choice to spread the cost of an item over 3 interest-free instalments, one payment per month. One of their competitors Clearpay offers payment over 4 interest-free instalments, taken from your account every 2 weeks.
Both companies, Clearpay and Klarna won’t surprise you with hidden fees, providing you make payments on time. They make their money by charging the company you’re buying from a small percentage of the transaction as a fee.
Some catalogue companies also offer the option to buy now pay later, usually over a 6- or 12-month period. If you don’t pay the balance off before this, you’ll face a heap load of interest, as it’s usually compounded for the interest free period and then added as a lump sum at the end, if you’ve not paid it off.
Why are campaigners concerned?
Recent research has found that 1 in 3 people who bought using buy now, pay later schemes such as Klarna and Clearpay, couldn’t afford to buy the items outright if they needed to. This is feared to be triggering consumers to spend more than they can afford and begin a cycle of over-indebtedness.
Klarna were previously accused of paying Instagram influencers to post advertisements, promoting the use of buy now, pay later schemes to buy products online – the advertisements were later banned by the advertising watchdog.
With the pandemic and subsequent impact in mind, there are calls for the buy now, pay later companies to come under tougher regulations from the Financial Conduct Authority. Many people may now find themselves struggling, an increase in furlough and redundancies means a reduction in income, who knows if those instalments will now be affordable?
Think you need to break the debt cycle?
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