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Buy now pay later schemes luring people into debt

Written by: Emma Lunn
Options to delay payment on purchases are encouraging workers to spend money they don’t have, according to Hastee.

Buy now pay later (BNPL) schemes offered by retailers are luring people into living beyond their means, according to a survey by Hastee.

The earnings-on-demand company found that half of respondents said BNPL options encouraged them to spend money they don’t have. The figure rose to 59 per cent for those aged 18 to 35.

BNPL schemes have become a popular choice for consumers who want to delay payments on their purchases for a specified period. Klarna, for example, partners with more than 4,000 UK retailers and gives consumers the option to delay payment for 30 days, or split the payment into three instalments.

But Hastee found that more than a quarter of respondents (27 per cent) said they have experienced difficulties after using BNPL schemes.

Millennials are the worst-hit age group when it comes to experiencing difficulties after using BNPL schemes. More than a third (36 per cent) said this has been the case. Financial stress has impacted their social lives (50 per cent), relationships (40 per cent), health (39 per cent), and work (38 per cent).

The survey also revealed that workers across all salary bands agree that the schemes encourage them to spend money they don’t have. The figure tends to rise in the higher salary bands, highlighting that this issue is not exclusive to lower paid workers.

James Herbert, CEO of Hastee, said: “Buy now pay later schemes might seem an attractive option for consumers but they’re proving to be as problematic as more traditional forms of credit. While they seem like a good short-term solution, they can cause consumers issues in the longer term. Missed payments can impact credit scores, cause longer term debt problems and could create an unhealthy reliance on credit cards and overdrafts as users struggle with repayments.

“Our advice for anyone tempted by one of these schemes is to make sure you’ve weighed up the affordability of the purchase and explored all options before making any commitments. If you can’t afford the repayments, consider whether you really need the item or work out another way of paying for it that won’t cause you long term financial difficulty.

“There are plenty of digital money management tools that work together to help people live comfortably and within their means, such as challenger banks, earnings-on-demand solutions and budgeting apps.”

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