How families feed themselves using lenders buy now, pay later

Overspending trap: Student Synthia Gazi was first tempted to use BNPL services to buy clothes

When buy now, pay later arrived in Britain, it was popular with online shoppers as a way to spread the cost of a new outfit.

But controversial lenders are now touting their credit for everything from food to travel – and critics fear that easy credit could drive households into debt as the country faces a cost-of-living crisis with rising prices, taxes and bills. One in 12 spenders use buy it now, pay later (BNPL) schemes to buy basic necessities such as food and toiletries, the charity Citizens Advice has found.

Yet even though the Financial Conduct Authority (FCA) declared more than a year ago an “urgent need” for these lenders to be regulated, campaigners are still waiting. NatWest yesterday became the first High Street bank to announce plans to launch a BNPL program for customers.

Under NatWest’s plans, shoppers will be able to split the cost of purchases into multiple refunds with most retailers that accept Mastercard.

However, unlike most BNPL loans, the bank’s system will be regulated by the FCA, so borrowers will be able to approach the financial ombudsman with complaints.

A Money Mail survey today reveals that credit can now be used to buy everything from basic necessities to expensive holidays.

BNPL allows buyers to stagger payments for goods without interest or charges, unless they fail to repay on time, in which case some companies charge late fees.

It is based on the old concept of hire purchase, i.e. the loan that allowed customers to buy high value goods such as furniture that they could not afford to buy directly. .

Stella Creasy, Labor MP for Walthamstow, who has long called for urgent regulation of the sector, said: ‘These companies are getting a free pass to explode into every corner of people’s lives.

UK shoppers spend £6.4bn a year on BNPL credit, according to consultants Bain & Company.

Swedish giant Klarna, BNPL’s biggest lender with 16 million UK customers, has just launched a contactless card that shoppers can 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.

A queue of 400,000 borrowers was on a waiting list for a card in January, and tens of thousands have been issued so far.

Easy money: NatWest has become the first High Street bank to announce plans to launch a BNPL program for customers

Easy money: NatWest has become the first High Street bank to announce plans to launch a BNPL program for customers

Cardholders don’t pay any interest or late fees, but if they’re overdue in repayment, the debts can be passed on to a collection agency.

Jane Tully, director of the charity Money Advice Trust, said: ‘While buy now, pay later products are expanding into new areas, including offering the ability to buy essentials like food, the need for regulation has become more urgent.

“Our concern is that people continue to access these schemes who may not be able to repay later.”

BNPL lenders argue their credit is a cheaper alternative to credit cards, but the lack of regulation means borrowers cannot go to the financial ombudsman to complain if something goes wrong.

And unlike credit card holders, they will not have the right to seek a refund under Section 75 of the Consumer Credit Act.

It will also not be long before BNPL borrowings begin to affect credit ratings as agencies prepare to start including them in client records later this year.

However, this means buyers can borrow from multiple BNPL lenders at once. Barclays data shows that six in ten BNPL borrowers aged 18-24 repay at least three lenders.

Sarah Coles, personal finance expert at Hargreaves Lansdown, says: “The real problem with buy now, pay later is that people often don’t think of it as a form of debt. Instead, they see it as budgeting by spreading the costs over a longer period.

Plastic: Swedish giant Klarna, BNPL's biggest lender with 16 million UK customers, has launched a contactless card that shoppers can use at any store that accepts Visa payments

Plastic: Swedish giant Klarna, BNPL’s biggest lender with 16 million UK customers, has launched a contactless card that shoppers can use at any store that accepts Visa payments

Flava presents itself as an BNPL online supermarket. The site, which charges no late fees, offers new customers £100 interest-free credit to spend on groceries, which can be paid back over four weeks.

But loyal buyers who maintain their refunds will be offered more credit – up to £160.

London-based lender Zilch is also allowing shoppers to spread payments over six weeks for a wide range of retailers, including supermarkets and takeaway restaurants. Interest-free, no-fee credit offered by the lender at eligible stores is currently not regulated by the FCA.

No charges are levied on late repayments and, like most other BNPL lenders, it does not report any clients to credit agencies.

Coach company National Express has partnered with Clearpay to allow passengers to spread the cost of tickets over six weeks.

And travel sites Expedia and Hotels.com offer holidaymakers the option of spreading the cost of their holiday over three months with Klarna: for example, a night in a hotel in Manhattan would cost £192.50 on Expedia, or £64.17 £ in three instalments.

The London site Butter markets itself as a BNPL travel agency, allowing customers to share the cost of flights and hotels over ten months. However, it is regulated by the FCA and its clients have access to the Financial Ombudsman.

Student Synthia Gazi, 22, from Enfield, north London, says BNPL services tempted her to overspend. She first used them for clothes, but at one point she was refunding up to eight orders.

“You don’t think about refunds in the coming months,” she says, “and the costs add up so quickly.”

Klarna UK’s Alex Marsh says its “strict eligibility checks” ensure it only lends to those who can repay. A Clearpay spokesperson said its “built-in protections” ensure customers don’t fall into “a revolving debt trap.”

Zilch says its data shows customers use the service to manage their money, spending and cash in a “responsible way over time”, while a spokesperson for Flava adds that 53% of its orders come from customers. regularly and that its prices are “effectively” fixed. by the wholesaler he uses.

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