The dangers of buying now, paying later and how to avoid them


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Millions of people in the UK use Buy Now and Pay Later services that allow you to delay payment for products. Providers of these services that you may have heard of include Klarna and Clearpay. But while the vendors are keen to sell you the benefits, remember that where there are advantages, there are also disadvantages.

So, before you click to “buy,” here are the potential dangers of buying now, paying later, and what you can do to avoid them.

Late fees and debt collection

Buying now and paying later can help spread the costs, but it is still a type of credit. This means that deferred payments must be repaid at some point.

If you cannot make these payments, the consequences can include significant late fees which vary depending on the service provider. In some cases, you might even end up with debt collectors knocking on your door. Worryingly, this scenario is already a reality for many consumers.

A study by Citizens Advice found that one in three buyers using Buy Now pay missed or late payments later. One in ten users had been sued by a debt collector. Of those who struggle to repay their purchases, they now pay later payments, more than half (54%) had to borrow more to repay their debts.

Needless to say, this can lead to a downward spiral of debt continuation.

Buying Now Paying Later May Affect Your Credit Score

One of the benefits of buying now paying later is the smooth credit check. This is a point that providers are keen to stress, and it means that your credit report will not show a request for credit.

Many see this as an advantage because too many credit applications are a red flag for lenders. However, that doesn’t mean that your credit report is completely unscathed.

If you miss a payment, it can show up in credit checks and could affect your access to credit in the future.

No protection under section 75

If you use a credit card to purchase items costing between £ 100 and £ 30,000, you are protected under section 75 of the Consumer Credit Act 1974. This means that if something is wrong like the product is faulty you can get your money back.

But the rules of Article 75 only apply in specific situations. The purchase must show a clear connection between you, the credit card company, and the supplier. For example, if you buy a washing machine from an electrical store with your credit card, you’re covered.

Using a third party (such as a buy now pay later supplier) means that the direct relationship described above is broken. So if you buy a washing machine using Buy Now, Pay Later, and the retailer goes bankrupt before it is delivered, you cannot claim Section 75 compensation.

Buying now paying later is currently unregulated

Earlier this year, the government announced that suppliers buy now pay later will be regulated by the Financial Conduct Authority (FCA). The aim is to ensure that users of the services are treated fairly and can get help if they run into problems.

The regulations also mean that suppliers buy now pay later will have to perform appropriate affordability checks. Citizens Advice found that only 11% of suppliers made it clear that customers signed a credit agreement.

While this is a positive step, the FCA says it expects there to be a consultation period. With that in mind, it is unclear when such regulation might begin.

Take Out: How To Best Use Buy Now Pay Later

Used wisely, buy now pay later can be a convenient way to buy the items you need before payday arrives. But as with any credit agreement, there are golden rules. One of them is from never miss a payment.

The financial decisions we make are very personal. And there are situations where buying now paying later provides a convenient and much-needed service. The key is to stay on top of the payments and know when to stop.

If you need to buy essentials on credit, it’s a good idea to weigh the pros and cons of buying now and paying later versus traditional credit.

And if you find yourself in debt, it’s never too late to try to fix it. For some practical advice on what you can do, check out our five-step guide to getting out of debt.

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