Buy now, pay later arrived first in Britain, it was popular with online shoppers as a way to spread the cost of a new outfit.
But the controversial lenders are now touting their loans for everything from food to travel – and critics fear the easy credit could drag struggling families deeper into debt as the nation faces a cost-of-living crisis as prices, taxes and bills soar.
The overspending trap: Student Synthia Gazi was first lured into using BNPL’s services to buy clothes.
Charitable organization Citizens Advice found that 1 in 12 spenders use buy-now-pay-later (BNPL) schemes to shop for everyday essentials such as food and toiletries.
However, although the Financial Conduct Authority (FCA) declared an “urgent need” for such lenders to be regulated more than a year ago, campaigners are still waiting.
Yesterday, NatWest became the first High Street bank to announce its intention to launch a BNPL scheme for clients.
Under NatWest’s plans, shoppers will be able to split the cost of purchases into several payments with most retailers accepting Mastercard.
However, unlike most BNPL credits, the bank scheme will be regulated by the FCA, so borrowers will be able to go to the financial ombudsman with complaints.
Today’s Money Mail investigation reveals that the credit can now be used to purchase everything from everyday essentials to expensive vacations.
BNPL allows shoppers to pay for goods without interest or fees — unless they fail to pay on time, at which point some companies charge late fees.
It builds on the earlier concept of rental purchase – lending that allowed customers to purchase high-value items such as furniture that they could not afford to buy outright.
“These companies are getting a free pass to explode into every corner of people’s lives,” says Stella Creasy, the Labor MP for Walthamstow who has long called for urgent regulation of the sector.
UK shoppers spend £6.4 billion a year using BNPL credits, according to consultants Bain & Company.
Swedish giant Klarna, the largest BNPL lender, with 16 million customers in the UK, has launched a contactless card for shoppers to use at any store that accepts Visa payments. The Klarna Card allows customers to defer payments for 30 days.
In theory, spenders could use the cheap credit to buy alcohol and tobacco.
Easy money: NatWest has become the first High Street bank to announce its intention to launch a BNPL scheme for clients
A total of 400,000 borrowers were on a waiting list for a card in January, and tens of thousands have been issued so far.
Cardholders are not charged any interest or late fees, but if they are late in making payments, the debt can be transferred to a collection agency.
Jane Tully, director of the charity Money Advice Trust, says: ‘As buy now, pay later products expand into new areas, including providing the option to buy everyday essentials such as food, the need for regulation has become even more urgent.
“Our concern is that people continue to access these schemes and may not be able to pay off.”
BNPL lenders argue that their credit is a cheaper alternative to credit cards, but the lack of regulation means that borrowers cannot go to the financial ombudsman to complain if something goes wrong.
And unlike credit card holders, they will not be entitled to claim a refund through Section 75 of the Consumer Credit Act.
It won’t be long before BNPL borrowing starts to affect credit scores, as agencies prepare to start including it in client files later this year.
However, this means that shoppers can borrow from more than one BNPL bank at a time. Data from Barclays shows that six in ten BNB borrowers between the ages of 18 and 24 are paying off at least three lenders.
“The real problem with buy now, pay later is that people don’t often view it as a form of debt,” says Sarah Coles, personal finance expert at Hargreaves Lansdown. Instead, they see it as budgeting by spreading costs out over a longer time.
Plastic: Swedish giant Klarna, the largest BNPL lender with 16 million customers in the UK, has launched a contactless card for shoppers to use at any store that accepts Visa payments
Flava markets itself as BNPL’s online supermarket. The site, which does not charge a late fee, is offering first-time customers £100 interest-free credit to spend on their groceries, which can be paid back over four weeks.
But loyal shoppers who continue to make their payments will be given more credit – up to £160.
London-based lender Zilch also allows shoppers to split payments over six weeks at a wide range of retailers, including supermarkets and takeaway restaurants. The interest and fee-free credit offered by the lender at eligible stores are not currently regulated by the Financial Conduct Authority (FCA).
It does not charge any fees for late payments, and like most other BNPL lenders, it does not report any customers to the credit agencies.
Coaches National Express has partnered with Clearpay to allow riders to spread the cost of tickets over six weeks.
And travel sites Expedia and Hotels.com offer holidaymakers the chance to split the cost of their holiday over three months with Klarna: for example, a night in a Manhattan hotel would cost £192.50 on Expedia, or £64.17 in three instalments.
London-based Butter markets itself as a BNPL travel agency, allowing clients to split the cost of flights and hotels over ten months. However, it is regulated by the Financial Conduct Authority (FCA) and its clients have access to the Financial Ombudsman.
Student Cynthia Ghazi, 22, from Enfield, north London, says BNPL services have lured her into overspending. I used it for the first time for clothes but at one point it was filling up to eight orders.
“Don’t think about repayments in the coming months, and the costs add up quickly,” she says.
Alex Marsh, of Klarna UK, says ‘strict eligibility checks’ ensure they only lend to those who can repay. A Clearpay spokesperson says “internal safeguards” ensure customers don’t fall into a “recurring debt trap”.
Zilch asserts that its data shows customers use the service to manage their money, spending and cash flow responsibly over time, while a Flava spokesperson adds that 53 percent of its orders come from repeat customers, and that its prices are fixed ‘effectively’ by a merchant. sentence that is used.
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