Are Buy Now Pay Later Shopping Schemes Bad?

We’ve all seen them on checkout pages. Options for Buy Now Pay Later shopping schemes such as Klarna, ClearPay and Paypal credit. Buy Now Pay Later (BNPL) gives you the option to defer payment for a period of time, for example, 30 days. Or to spread the payment into smaller amounts.

While the average transaction value tends to be low, shoppers can take out multiple agreements with providers so it can quickly stack up. Transaction volumes through Buy Now Pay Later schemes reportedly tripled in 2020 as our spending has been forced online. According to comparethemarket one-third of adults in the UK say they use BNPL schemes more now than at the start of the pandemic.

The risks around Buy Now Pay Later schemes

Now I’ve only had good experiences with BNPL schemes which you can read about below, but there are risks around them. As you can apply for multiple Buy Now Pay Later shopping schemes the £100 here and there can all add up leaving you with lots to buy off. And according to the FCA review, one in 10 people using them are already in debt arrears elsewhere.  Now BNPL schemes can be great to allow you to try on loads of items before sending some back or to be able to purchase something a week before payday. But they can create bad spending habits for people who aren’t the best with money.

Before legislation changes, an affordability check wouldn’t have happened. So credit may have been given to people who really couldn’t afford to pay it back. This is especially true with younger people who perhaps don’t have as much knowledge around credit and its impact. Money.com found that shoppers aged 18-24 owed on average £225 on BNPL schemes which was 28% more than the average shopper. And around 36% admit that they’re concerned as BNPL encourages them to take on debt.

Stricter controls for Buy Now Pay Later shopping

Debt charities and consumer champions have been campaigning for better protection for customers. And the government recently announced that regulation is on the way for Buy Now Pay Later shopping schemes. The interest-free agreements are going to be regulated by the Financial Conduct Authority (FCA) after a review was done revealing there was potential for harm to the consumer.

Lenders will have to carry out an affordability check on customers and ensure that the vulnerable are treated fairly. John Glen, Economic Secretary to the Treasury said “By stepping in and regulating, we’re making sure people are treated fairly and only offered agreements they can afford- the same protections you’d expect with other loans.”

There’s been a lot of positivity surrounding the change in regulations. Even Klarna who is one of the leading Buy Now Pay Later shopping schemes said, “Current regulation is nearly 50 years old, it has not kept pace with newer products and changing customers needs. It’s time for modernisation so it is fit for purpose.”

Martin Lewis, founder of Moneysavingexpert said “Most importantly for me, it means people would have a right to take any complaints to the free and independent Financial Ombudsman Service.”

My experience of Buy Now Pay Later shopping schemes

Used in the right way I do think Buy Now Pay Later schemes can be really beneficial. But you need to be able to manage your money well and not use them to buy items you won’t be able to pay back.

I’ve used BNPL a lot over the past 4 years, most notably when I worked at ASOS. I was there for 2 years, and thanks to a great staff discount, I’d buy a lot of clothes. But I also knew I wouldn’t keep everything. I’d order high quantities but also return high quantities. So I used to use Klarna to buy things. And then after I returned items and the price adjusted I’d pay off the balance. It was never because I couldn’t afford things but it meant I was only paying for the bits I was keeping. And not having to worry about waiting for refunds.

Most recently I used ClearPay to buy the latest Caroline Hirons kit. Rather than splurging almost £200 from my savings, I put it on a payment plan. This saw the price split into 4 and paid every other week. So I paid the full amount over an 8 week period. This made the spending feel more affordable and stopped me from having to dig into my savings.

Have you used a Buy Now Pay Later shopping scheme?

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