The advantages and disadvantages of “buy now, pay later” programs

Buy-it-now, pay-later (BNPL) systems have quickly become a popular payment option for consumers in the UK.

A study by loan provider Creditspring found that more people took out BNPL programs than traditional loans from traditional lenders in 2021, and “young adults are among the most frequent users,” This Is Money said.

As the name suggests, BNPL programs operate on a system of buying goods on credit and paying at a later date. Some offer an interest-free period during which the full sum can be repaid, while others offer interest-free partial payment plans over specific periods.

“If you stay in control,” the programs “can be a smart way to ensure you’re not hit with a big bill at some point in the year,” said the BBC’s business affairs correspondent. consumers, Colletta Smith. But “it is always important to check the terms and conditions before registering”.

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Advantage: convenient way to borrow

It is “easier to get into the BNPL than to qualify for a credit card”, according to Neil Kadagathur, Managing Director of Creditspring. Most providers will perform a “soft credit check” before approving a consumer for their service, rather than a full debt assessment. This type of check will not leave a “fingerprint” on your credit file.

Forbes adds that “you certainly wouldn’t imagine it if you’ve seen much more flexible payment offerings” in recent years. BNPL services have been quickly adopted by a range of retailers, so in many cases you can now split payments for clothing or toiletries as easily as possible for more expensive tech purchases.

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Disadvantage: borrower misconceptions

The Creditspring survey found that one in seven respondents thought it was “impossible” to get into debt using BNPL programs – and that level rose to one in four for respondents under 35.

“Unfortunately, borrowing money is never without consequences,” Forbes said. According to the terms and conditions of the individual service, users can have hot water in case of late payment. Forbes warned that the BNPL’s schemes ‘make impulse buying even easier’ and ‘make tracking your spending considerably more difficult’, making it more likely to risk inadvertently going into debt.

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For: “a way to make ends meet”

As household bill prices soar, splitting payments for larger purchases over several months has proven popular. “Consumers are increasingly turning to BNPL products to manage their finances amid a cost of living crisis,” City AM said.

Citizens Advice said it had seen an increase in late payment schemes marketed as a “means of making ends meet”, and acknowledged that “splitting and late payments will undoubtedly work for some people in some settings”. However, he also warned of the potential pitfalls of unknowingly going into debt.

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Disadvantage: Not regulated in the UK

The government is currently looking to introduce regulations in the sector, but at present BNPL is seen as the “new Wild West of the borrowing industry”, This Is Money said. The Financial Conduct Authority has also worked with some of BNPL’s major providers to overhaul the terms of service so that no user account can be suspended, terminated or restricted without notice.

Creditspring’s Kadagathur noted that 15 million people in the UK “are currently struggling to access mainstream credit options”. The flip side of the convenience of these plans is that people who are “in a precarious financial situation” can easily access them without rigorous credit checks.

Klarna “led the UK boom” in BNPL services in recent years, the Financial Times said. And one of the reasons for its popularity is that it allows customers who buy online to “try before they buy”.

Shoppers can use Klarna to order multiple garments at once – for example, a dress in multiple colors or sizes – and return the ones they don’t want, only paying for the items they choose to keep. One shopper told Refinery29 it allows her to “shop online like she would in real life, trying on several sizes and checking the fit of a piece” before making a final purchase.

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Disadvantage: pay more in the long run

“The simplicity of the Buy Now Pay Later model is as much its selling point as its Achilles heel,” Metro said. Consumers might first encounter a financial hurdle buying items they can’t necessarily afford, but this can become a bigger problem if they incur late payment fees or higher interest rates. .

MoneySavingExpert said nearly half of people using BNPL were “unaware” that they risk being charged late fees if they miss a payment. And the website notes that many of these companies guarantee they have the right to report missed payments to credit reference agencies, which means your credit score could be affected in the long run.

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