1000 buy now pay later UK customers that were polled in a recent survey indicated that more than 70% of consumers have used one of these schemes. Of this percentage, 73% said it contributed towards a debt problem later on. Although these schemes are nothing new, the pressure to purchase by external platforms like social media, could be one of the reasons people are getting into trouble. One article suggested that Generation Z have a “want it now” attitude that buy now pay later creditors are feeding into. We recently wrote an article on the expected spending habits of Generation Z which slightly contradicts this, but there is no denying that modern living is increasing our insistence on immediacy, instant gratification and an on-demand purchasing power.
Over 4000 UK retailers work with the biggest provider of buy now pay later schemes, including giants like ASOS, JD sports and more. Clearplay, another buy now pay later UK provider, claims to have had 200,000 active customers in the first 15 weeks of trading, highlighting the popularity of these schemes! We are taking a look at what buy now pay later UK customers can expect from this kind of credit and what continuing with this kind of buying might mean for their financial futures.
How Does Buy Now Pay Later Work?
In retail, a buy now pay later scheme is simple to understand. It allows consumers to buy goods, whether that’s clothes, electricals, homeware or experiences, and get the bill the next month, or spread out in instalments. For retailers, this gets cash across the line as soon as possible and customers get quicker access to the things they want and possibly even need, like washing machines and white goods, which are things like your washing machine and fridge. There is a concern that buy now pay later UK consumers could be suffering from this on-demand purchasing power, though.
Buy now pay later schemes can be structured like a payday loan or a short term loan. For the payday loans structure, customers will have to pay back the value of the goods they purchase at the end of the month or when their next cheque comes in. Alternatively, a short term loan can be spread out over three months, which could make the borrowed amount more manageable. Some companies also provide longer repayment terms, but these tend to be for more expensive items like furniture. Some retailers outsource this payment option to brands like Klarna or Clearplay, whilst some are able to handle it in-house.
Should You Be Wary Of These Schemes?
Articles highlight that the increase of buy now pay later UK customers has been swift, as higher-end high street brands in the US used to be the prime examples that offered this payment scheme. However, even budget retailers in certain industry, for example, clothing and fashion, offer buy now pay later schemes. Boohoo, who also own Nasty Gal, work with Clearpay to provide four instalment payments for goods. One report indicates that the launch of this payment option on their sites resulted in a 20-30% increase in basket sizes.
An argument could be made that offering buy now pay later at the check out of budget-end retailers tells customers they can buy regularly, due to cheap prices and delayed consequences. Perhaps more poignantly though, it could be presenting and glorifying the attitude of ‘you can have it all’ even when customers realistically can’t afford it. This is because customers who frequent budget shops, might not have the available money to buy new things all the time, but these payment methods allow them to delay the cost and any immediate negative association with their purchase.
Wizzcash recently wrote about the rise in people seeking debt help, which could correlate with getting into trouble with these schemes. Anecdotal reports highlight that an individual’s credit score could be damaged if they do not meet the scheduled repayments. This is quite standard for all credit or loan products, like emergency loans for example, but some buy now pay later UK operators cap their late fees at £36 or 25% (whatever sum is lower). This is similar to how the FCA regulate the payday loans industry, implementing caps to help protect consumers. Creditors are also under fire for their marketing and tag lines, which could be completely ignoring the gravity or responsibility of using buy now pay later schemes. Reports show that these could be encouraging younger people to use buy now pay later for frivolous spending. It could be considered irresponsible to encourage customers to enter debt whilst encouraging spending that could impact their financial security in the long term.
Recently, it was announced that M&S would be joining other major buy now pay later UK retailers, introducing this option is suggested to directly target young people. This is because young people are buy now pay later’s biggest UK customers. Logically, this would be because these demographics are just starting their careers and might not get the biggest pay cheques or have the most disposable income. Yet, this is the demographic that are most likely to be influenced by social media and experience pressure to purchase and keep up with trends. Interestingly, reports show that under-25s made up 14% of those seeking debt help from Step Change, with an average outstanding debt of £6000. This could suggest that buy now pay later schemes are encouraging potentially harmful financial behaviour.
Here at Wizzcash, we do not encourage lending money for frivolous purchases. As a payday loans direct lender, we are able to provide quick access to cash subject to a set of criteria, when our customers are experiencing a one-off financial emergency. We are a responsible lender as well as broker. When we are unable to help you we will always try to find someone who can. We only work with companies that do not charge fees and promise to be transparent with our customers about the cost of our loans and the alternative that might be better suited to them. However, buy now pay later does not operate quite like that. Although the expected APR and interest rates are much lower than short term loans, it does also encourage non-essential spending. You can find out how we work and our lending criteria on our website or get in touch if you want to know more!