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‘Buy now, pay later’ schemes contribute to debt issues

Written by: Emma Lunn
More than seven in 10 (73 per cent) of people with debt problems said retailers’ buy now, pay later (BNPL) schemes had exacerbated their money issues.

A growing number of retailers are using BNPL schemes to encourage customers to make purchases without the immediate demand to pay – but debt advice company PayPlan says the schemes can lead to problem debt.

PayPlan surveyed more than 1,000 18 to 34-year-olds about BNPL schemes and more than 70 per cent said they had used a BNPL plan to make purchases. But a similar number (73 per cent) said that BNPL schemes contributed towards a debt problem later on.

Firms offering BNPL schemes claim they are intended to help with budgeting, but buyers can be faced with charges if they miss repayment deadlines.

When using BNPL buyers are encouraged to make purchases and pay for their goods at a later date – this could be in instalments over the course of a month, or up to 30 days after the purchase is made. For larger purchases, the payments could be staggered over several months, and sometimes for a year or more.

In some cases, if the consumer does not repay the entire amount within this period, then interest will usually be charged from the date of purchase. Consumers who repay part but not all of the amount owed are still charged backdated interest on that part.

According to the Financial Conduct Authority (FCA), more than a third of consumers do not repay within the offer period, incurring interest charged from the date of purchase.

PayPlan warns that if you use this form of payment method regularly, you could get bogged down with deadlines and end up missing some payments; it may be easy to get confused when making multiple purchases using BNPL.

PayPlan’s survey also highlighted the role that social media has on such purchases. Six in 10 (59 per cent) said their lifestyle choices have in some way been influenced by online influencers and 30 per cent said they overspent due to advertisements on social media.

Rachel Duffey, CEO of PayPlan, said: “It’s clear from our recent findings that buy now, pay later schemes are causing a significant proportion of buyers to mismanage their spending and, as a result, get into financial difficulties.

“Although these schemes are convenient in the short-term, they can have a negative lasting effect. If used frequently, it can be easy for buyers to lose track of repayment deadlines, resulting in late charges and fines.

“If you are struggling with debt, you should try to negotiate with your existing creditors and come to an arrangement over what you owe; you can ask for more time to pay and, although this isn’t guaranteed, it’s certainly worth asking the question.

“It may also be worth seeking professional help from a debt adviser if you are overwhelmed with multiple debts.”

Next month will see new rules will come into play in the BNPL market. The changes, which include banning firms from charging backdated interest on money that has been repaid by the consumer during the BNPL offer period, will be in force by 12 November.

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