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BLOG: How to avoid falling into the buy now, pay later debt danger zone

BLOG: How to avoid falling into the buy now, pay later debt danger zone
Your Money
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Your Money

Buy now, pay later (BNPL) is getting more and more popular, but worries over personal debt levels are leading to new regulations on how companies offer their services. Here are steps to take now to avoid getting into problem debt.

UK shoppers love the convenience of BNPL, so much so that nearly half of adults (48%) used this payment method in 2023 to spread the cost of purchases.

The total amount spent using BNPL also rose to £16.8bn – a 12.8% increase from 2022.

However, with more people turning to BNPL to cope with inflation and rising living costs, it can be easy to fall into debt that soon becomes overwhelming.

But there are practical steps you can take to make sure you’re on top of your spending and stay away from the debt danger zone. Your future self will thank you.

1) BNPL is not ‘free money’

It’s credit, so you need to manage repayments responsibly.

You’ll often see BNPL offered as ‘interest-free’ or ‘no credit check needed’, but it’s important to know it’s a form of credit, and as soon as you use it, you owe debt.

Most of us will go into debt at some point in our lives, whether that’s getting a mortgage or finance to buy a car. It’s how you manage and repay that debt that makes all the difference.

Sometimes, borrowing money over a longer period can be more suited to your budget than an outright upfront large payment. The most important thing to remember is that whenever you borrow money, you need to pay it back – on time – so you won’t be subject to penalty fees for missing payments.

Managed well, BNPL shouldn’t cost you a penny.

Tip #1: Set a reminder on your phone calendar app about your repayment days so you don’t lose track of when money is about to leave your account. 

2) Build up a savings buffer to make repayments

Losing track of repayments could affect your ability to borrow in future. Late or missed payments could be reported to the credit reference agencies, and if you fall more than 90 days behind, it could affect your credit report by showing for up to six years.

If you keep on top of your BNPL borrowing and make your payments on time, you can maintain a good credit score and even improve a poor one. The key to keeping a good credit score and making repayments on time is to make sure you have enough money in your bank account to cover what’s due to leave it.

Tip #2: There are lots of personal financial management tools available from banks and other account providers that can help you set money aside into specific savings pots, build up financial buffers, and buy the things you want without going into debt to get them. Following my preferred ethos of ‘save now, buy later’ could mean you don’t need to turn to BNPL at all.

3) Check the T&Cs of your credit agreement

When you opt to split payments at the checkout, the BNPL provider should give you terms and conditions for repayment. Yes, they’re boring to read, but don’t skip the T&Cs. While many providers will offer interest-free BNPL, check the interest or APR on any late payment fees you may be subject to.

Right now, the BNPL sector is unregulated – although the Financial Conduct Authority (FCA) is considering changing this. You’ll find plenty of BNPL providers who are upfront and transparent about their terms and conditions, and who go to great lengths to explain things clearly to people signing up for their services.

There will also be those lenders who are counting on their customers not understanding the jargon and whose revenues depend on late repayment and penalty fees.

Tip #3: If you are confused about anything in the T&Cs, don’t be afraid to ask for clarification from the provider. You can also check with organisations like Citizens Advice if something in the T&Cs doesn’t make sense.

4) If you miss a repayment, don’t panic – help is at hand

It’s important to remember that you can find help for missed repayments. You should always contact the BNPL provider as soon as you can to explain the situation and see if it can work with you to arrange an alternative payment date and avoid late payment fees.

As tempting as it may be to take out more loans or lines of credit to help you make repayments, this could make your situation worse – seek expert and independent advice first.

Tip #4: Speak to Citizens Advice or StepChange, who can give you guidance on how to manage your debt.

What to do if your credit score is damaged

My final tip is, if you find yourself in a situation where your credit score is damaged by BNPL, don’t worry – there are ways that you can repair it.

Try not to bury your head in the sand – too often, people ignore their credit score right until they need it (which could then be too late).

There are tools available to help you start rebuilding your credit score today, helping you get set up for your financial future.

At Loqbox, we offer several app-based financial wellbeing tools that you can use to build or repair your credit score.

In fact, we’ve helped over 1,000,000 people to build their credit scores, grow their savings, and reach their financial goals. It’s tried, it’s tested, and it can help you improve your financial stability.

Tom Eyre is co-founder and co-CEO of Loqbox

Related: Guide on everything you need to know about Buy Now, Pay Later