Buy Now, Pay Later are four little words you’re probably fairly familiar with.
At a time when consumer spending continues to rise even in the face of a cost of living crisis, Buy Now, Pay Later has become increasingly prevalent in many people’s lives.
For those who haven’t encountered it – Buy Now, Pay Later is a form of short-term financing that allows shoppers to buy a product without having to pay for it until a later date.
How this works is a Buy Now, Pay Later provider – major players in the industry include Klarna, Clearpay and Laybuy – will pay the retailer on your behalf, and then you will pay them back usually over a few weeks or months.
Why is Buy Now, Pay Later increasing in popularity?
Immediacy for one. No need to wait for payday, Buy Now, Pay Later provides shoppers with an opportunity to get their hands on a new top, TV or toaster even if their bank account is saying ‘no’.
It also offers a convenient way of spreading the cost of this purchase, or purchases, over a period of time that best suits your financial circumstances. You usually don’t need a high credit score to qualify, approvals tend to be fast and painless, and often there’s no interest.
What’s not to love? Well, a few things.
What are the disadvantages to Buy Now, Pay Later
There are fears Buy Now, Pay Later is causing some shoppers to spend beyond their means, adding to existing debts in the process, and leaving them in further financial distress.
This has been backed up by research carried out by Citizens Advice, which found more than two in five Buy Now, Pay Later customers borrowed money to make repayments. Types of borrowing included overdrafts, borrowing from friends and family, loans and payday loans.
Millie Harris, a Debt Adviser at Citizens Advice, said:
Most of the people I speak to who are using Buy Now Pay Later live off overdrafts and credit cards, so are using these for repayments. It’s just relying on one debt to pay off another debt.
It’s heartbreaking to see parents who can’t afford their children’s clothes or shoes, turning to Buy Now Pay Later, thinking it’s doing them a favour. In reality, it’s just more debt and more creditors, on top of what they’re already facing.
What scares me most is how easily people can slip into using Buy Now, Pay Later.
Another one of the big risks associated with Buy Now, Pay Later is the temptation to splurge or make impulse purchases. This can quickly result in a mountain of unwanted clutter filling your house, but more worryingly can lead to a rising amount of repayments, too.
And here’s where Buy Now, Pay Later schemes can become treacherous.
Missing a payment will often trigger late fees and penalties, escalating your debt while leaving you with less money to pay the initial amount back. This could be further compounded by the possibility of having to pay interest for the rest of the payment period. Not to mention the fact, your credit score is likely to take a hit as well.
With PCCU, what you see is always what you get.
We don’t believe in hidden fees or penalties, and instead would rather work with you to make sure loan repayments are affordable and easy to manage.
Speak to us today for more information on low-cost loans.