Buy Now Pay Later schemes – would you get into debt for a jumper? 

Are Buy Now Pay Later (BNPL) schemes actually worth it? Shoestring Jane looks at the advantages and risks.

Scrolling through my Instagram feed recently, I came upon a shop showing a photo of a beautiful jumper. I was admiring how good it looked on the model when the following enticement to purchase jumped out at me:  ‘Buy now and pay later with Klarna’.

Wait, I thought, people need to buy a sweater using a BNPL scheme? Surely, if you can’t afford to purchase an item of clothing in one go, you should look for a cheaper option or do without for now. We need jumpers during our cold British Winter, but this one costs £280: definitely a luxury item!

It got me thinking. I have never used Klarna, Clearpay, Layby or any such buy now pay later (BNPL) scheme.

However, when I was younger, I did buy clothes from my Mum’s catalogue, which allowed me to pay over instalments. Is BNPL any different from Freeman’s or Littlewood’s? After all, these deferred payment credit schemes are interest-free, so what is the harm?

I decided to take to my Facebook group to see what they thought about the topic. As it’s called My Second Hand and Frugal Life, I assumed most members would feel the same disquiet I was experiencing.

However, I was surprised to find that many of them use BNPL regularly. Some pointed out that it helped them budget for more expensive items such as white goods. When you are on a low income, and your fridge or oven breaks down, such credit helps you to buy without paying interest. 

Many others expressed concern about accruing casual debt for inessential purchases like a jumper, makeup or takeout food (yes, you can now pay for your Deliveroo over three easy payments with BNPL).

Like me, they preferred to save up or do without.  But nobody admitted to experiencing any debt problems because of a BNPL arrangement. So, are they problematic, or am I seeing issues where there aren’t any?

How does BNPL work?

BNPL works in a number of ways we’ll look at Klarna’s offering. Klarna is the best-know BNPL provider in the UK, but far from the only.

Klarna offers three options:

1. Buy now, pay in three instalments. This breaks your purchase into three equal payments, the first paid when you buy the item and the following two at 30-day intervals. This is the most popular.

2. Buy now, pay in 30 days. Exactly what it says – you have 30 days to pay off your purchase, and you won’t be charged interest.

3. A more traditional product offering credit over a six to 24-month period. Klarna says the highest interest rate is 18.5%, but it might be less or even zero interest.

However – an important point – when you buy using Klarna and miss a payment, you will get a late payment fee of up to £5. Missing payments can also adversely affect your credit score. If you don’t pay, Klarna might pass your case on to debt collectors. 

BNPL encourages spending

BNPL firms are businesses and exist to make money, which they do by charging other businesses to use their service. Retailers are signing up in droves for one reason only – they should increase their sales.

This is the nub of the problem and the cause of my disquiet. BNPL could cause people to buy more than they would if the BNPL option wasn’t available and, potentially, to take out debt on inessential items.

You can see how customers might be tempted by a must-have fashion item costing £90 from their Instagram feed when they only have to pay £30 today and can worry about the remaining £60 later.

But what if they do this on multiple items, and the sum they have to find later becomes £100, £200, or £1,000? What if they accumulate many seemingly inconsequential purchases, meaning they can’t afford their rent or energy bill?

Alarming statistics

Debt charities are concerned about BNPLs. According to a press release from Citizen’s Advice issued in November 2023:

One in five (21%) of BNPL users have missed or made a late BNPL payment in the last 12 months, with one in 10 (10%) of those visited by an enforcement agency or bailiff as a result.

Almost a third (29%) of BNPL users who were due to make a payment in the last month borrowed money to repay their instalments, meaning their initial debt is leading to more debt.

Citizen’s Advice also said there had been a 67% increase in people seeking help with BNPL debt over the previous 12 months.

Judging by some of the comments on my Facebook group, some people can and do use BNPL schemes beneficially. However, it may be cheap to use, but it is still a debt.

I can’t help feeling that anything that normalises casual debt to purchase inessential items is potentially dangerous. Impulse purchasing is the enemy of your budget, and BNPL seems to encourage impulse buying. 

What do you think? Are BNPL schemes helpful or harmful in your experience?

Photo credits: Pexels