Buy Now, Pay Later on Rise
Despite the cost of living crisis squeezing household budgets, there has been a rapid increase in consumers making use of buy now, pay later finance options.
10% Increase Found in 2023
The Financial Conduct Authority (FCA) has found an alarming increase in people using buy now, pay later options. Protections need to be in place to ensure the most vulnerable don’t fall into severe credit limitations, the regulator has said. Of the 14 million people that used the buy now, pay later option in the six months leading up to January this year, those falling into financial difficulty are increasing.
In the 12 months leading to May 2022, around 17% of adults used buy now, pay later financing, but this was dwarfed by the estimated 27% who used it in the 6 months to January 2023. Research from the FCA indicates that the most frequent users of buy now, pay later tend to be in more financial difficulty than those who don’t. This then has the knock-on effect of increased debt and potentially missing bills.
The Benefits of Buy Now, Pay Later
The value of paying for a product at a later date after you’ve received it is enormous. Usually paid over time with no interest, they can offer benefits to consumers. The main advantage for consumers is that it is much easier to apply for buy now, pay later short term loans. On the other hand, your credit score won’t be affected by making use of these terms, unless you fail to keep up repayments on time.
The Drawbacks of Using Buy Now, Pay Later Deals
On the downside, the pitfalls of paying for a product later can be dangerous. While credit is easier to apply for, your credit score can be affected if you pay late or miss repayments. Additionally, it can be harder to track payments and you may still be required to pay for something after you’ve returned it. Even if you make use of these deals on a regular basis, they won’t help build up your credit score as they’re completely separate.
FCA Warnings
Sufficient information should be provided to all customers, but particularly those that are most vulnerable to falling into debt. Even though the FCA doesn’t have regulatory powers over buy now, pay layer products, it is still trying to help however it can. It has sent a reminder to all firms to ensure any contracts for these deals comply with consumer protection legislation.
Without interest, buy now, pay later loans are incredibly attractive, but it can be dangerous for vulnerable consumers as it breeds a culture of spending for items that aren’t needed or affordable. Taking on additional debt is a serious consideration, which should make consumers think twice about using pay later financing options.
In many cases, some households can end up borrowing more money to pay off existing loans, creating a debt spiral. They become trapped in a situation where they are struggling to keep up repayments, whilst also paying for essentials and rent or mortgage payments.
Unaffordable Lending
If you’ve taken out a store credit card or had a loan, you may be able to make a claim for unaffordable lending. Perhaps your credit limit was increased without consultation, or you were given credit in the first place without proper checks. If you’ve been struggling to keep up repayments, you could be eligible already.
To find out more, and see if you qualify, click on the button below. This has the power to reset your credit score.