Buy now, pay later loans have been around for many years, but recent deals have been accused of pushing young consumers into unaffordable debt.
Buy now, pay later credit allows consumers to acquire items without paying for them upfront, instead they spread the cost over a set period of time.
Sometimes referred to as shop credit or interest-free loans, these buy now, pay later loans usually offer an interest-free period for paying off the debt, but then charge high interest rates after this period has ended.
This type of loan was originally marketed as a way of making buying large household items affordable, particularly for families.
During recent years we have seen a resurgence of this type of loan aimed at younger, technologically-savvy shoppers. Many retailers, both online and offline are now offering these buy now, pay later loans disguised under other names. They are now being marketed as an ‘alternative way to pay’, often the terms ‘loan’ and ‘credit’ are not even mentioned.
Young people are being attracted to the lure of the immediacy with which they can acquire the items they desire using these loans. Rather than being solely used for large household items, these high-interest loans are now available for small purchases in all kinds of stores, including fast-fashion retailers.
Consumers are falling into the trap of taking out multiple buy now, pay later loans for small amounts and then losing track of them and forgetting to make payments. Multiple small amounts then rapidly spiral into unaffordable debt as the interest on them adds up.
This comes at a time when levels of UK household debt are rising, with non-mortgage related debt increasing by 11% and the UK’s average household debt totalling £9,400.
These worrying trends are causing a rising debt problem and putting the UK at risk of suffering another economic crisis.