You can’t go shopping nowadays without being offered credit. Buy it now and pay us later is the friendly message from firms like Klarna, Laybuy and Clearpay, which specialise in online shopping but can often be used in stores, too. Even PayPal has an option to pay in three instalments. Who could resist? A growing number do not. The market leader Klarna now has 8.6 million UK customers.
Of course, it doesn’t seem like credit or borrowing in the normal sense. Take Klarna. You can choose to pay in full 30 days after you buy or pay in three equal instalments – one now, one in 30 days and a third 30 days after that. If you keep to the rules, no interest is charged. If you don’t keep to them, then the only penalty is being banned from Klarna – there are no extra fees.
But think of this. If you can’t afford to pay when you buy the goods, are you sure you’ll be able to pay in 30 days – or pay the instalments as they fall due? If you don’t, then Clearpay and Laybuy charge a late payment fee of £6 – which can grow to up to £36 if you continue to be late. All three of them use debt collectors for persistent debts.
If you pay on time, the credit is free to you because the retailer pays the lender a cut of every sale. They are happy to do that because people who use these schemes spend more. Klarna’s website admits “30 per cent increased conversion reported from retailers offering Klarna’s services”. The danger is you will spend more than you intended and you may not be able to pay the instalments on time.
Many use it as a try-on service, buying a garment in several sizes and colours, and sending back the ones that don’t suit. By the time they need to pay, the credit for the returns is already deducted. But miss the deadlines and the bill will be high.
A final warning: buy now, pay later schemes do not have the automatic consumer protection you get when you pay with a credit card – the original, and in many ways still the best, buy now, pay later scheme.
Paul Lewis presents Money Box on R4.
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