There are many issues with Buy Now Pay Later (BNPL). Our blog outlines five key issues consumers face when using buy now pay later.
Buy now pay later, deemed “the future of millennial finance” has steadily grown over the years with companies such as Klarna and ClearPay becoming household names. Although, we’re getting sucked into a seductive world that allows shoppers to delay paying for an item with no interest or charges, there are quite a few cons to the seemingly unproblematic system.
1- Buy Now Pay Later is unregulated
At this point in time, the buy now pay later system is unregulated. Unregulated BNPL providers don’t have to carry out thorough affordability checks. When running these checks, it ensures credit is affordable for the customer, and that they are only borrowing what they are reasonably able to pay back.
The fact it is unregulated means more and more people are falling into the trap of paying for items they would not have necessarily bought and can’t pay the money back. The system lures you in with the idea that you can afford what you want, when you want. But in fact, the system that is supposed to save money is costing the public more, causing public figures to cry out for action to make the system regulated.
2 – Buy Now Pay Later targets a younger audience
With a lot of these buy now pay later systems popping up on companies such as ASOS and other mainstream retailers, these BNPL schemes seem to be targeting younger people.
Statistics from Citizen’s Advice found that half of 18 to 34-year-olds are taking out loans to make repayments as they see the BNPL system as a quick fix of getting what they want without having to pay for it. Some younger people may not understand the repercussions of unregulated finance, which could lead to a negative impact on their credit rating if payments are missed.
3 – Buy Now Pay Later has expensive late fees
Buy now pay later can be a quick way of accessing credit which is what makes it so appealing. But it turns out many users aren’t aware that if something goes wrong, you can face backlash, like late fees due to the fact people cannot afford what they are buying.
4 – Is Buy Now Pay Later debt?
Yes, it is and many people do not realise they are taking on debt. BNPL is becoming more prominent in mainstream shops with companies such as Klarna even planning to create a physical card which makes sense why it is becoming more common for people to be falling into this trap.
Another issue that comes hand in hand with the buy now pay later scheme is that you could potentially end up paying more in the long run. The scheme’s big selling point is that it can save you money. However, companies such as Clearpay and Laybuy charge a late fee of £6. So if you’re already struggling to pay for the item because you couldn’t buy it outright, you would now have to budget for an even bigger payment than was originally intended.
5 – Does Buy Now Pay Later encourage unnecessary spending?
People are tempted in with the idea that it doesn’t matter how much you have in your bank account, you can have whatever you want, when you want it.
This is the idea behind buy now pay later. But with this idea comes an influx of people spending money they don’t have.
If you can pay off the payments that’s great, but if you can’t pay off the debt at any point, missed payments can hurt your credit report. Any black marks against your credit report can then have knock on effects down the line, like struggling to get credit from other lenders.
What alternatives are there to Buy Now Pay Later
IGsend from Income Group enables employees to get real-time access to their earned wages. This means they can use their salary without the need for loans from buy now, pay later giants.
Faster Payroll payments means employees can easily budget and plan for any purchases – removing the need for unnecessary debt and increasing their financial wellbeing.