Buy Now, Pay Forever?
The Risks of Buy Now, Pay Later schemes.
An increasing number of people, including students, are turning to Buy Now, Pay Later (BNPL) schemes as a means to manage expenses.
With the current Cost-of-Living crisis and stagnant student Maintenance Loans, many students find themselves facing significant financial challenges, often unable to afford necessary items when needed. Managing your student finances can be difficult, as you juggle various aspects of your academic and personal life. You want to strive to achieve your best at university, while also maintaining a social life without having to worry about if you can afford to have the heating on!
This has made BNPL schemes especially appealing to students. We don’t blame you; it seems like everyone is using them! When handled responsibly, BNPL payments offer a convenient way to access credit and spread the cost of purchases. However, it is important to recognise the potential risks with these schemes.
This is where we step in! We have developed this guide to highlight the risks associated with BNPL schemes, and how they can aid you in managing your finances effectively.
What is a Buy Now, Pay Later scheme?
BNPL is a simple concept, rather than paying for goods upfront, you have the option to spread the cost over several months or even defer the payment to a later date. It’s important to remember this doesn’t mean that you pay any less for the items you are buying, it just means that you have longer to pay for them.
This flexibility can be invaluable, particularly if you’re facing financial worries. Knowing that you have the ability to pay at a later date can alleviate these worries and grant you the freedom to purchase necessary items without constantly monitoring your bank balance. However, it is important to assess your capability to fulfil these payments. Missing a payment can have consequences on your finances.
Here are some Buy Now, Pay Later schemes you may have heard of…
The Risks of using a Buy Now, Pay Later scheme.
It is important to understand the risks associated with using Buy Now, Pay Later schemes. It could save you from putting yourself in difficult financial situations.
1. No Consumer Protection
With Klarna, and other Buy Now, Pay Later companies, the Section 75 consumer protection laws do not apply! These laws are there to protect your purchases over £100 when using credit services, in the event of damaged goods or non-delivery.
2. Damage to your Credit Score
From the 1st of June 2022, Klarna began telling credit agencies about UK customers purchases using their service. This means that your purchases with be visible on credit reports held by Experian and TransUnion and will show if you paid on time, paid late or if you have any outstanding payments. A late or missed payment could be noted on your credit file, hindering your future credit options.
3. You Spend More!
Even though you know that you’ll end up paying the cost in front of you, it feels free at the time! This can lead to spending more than you would normally and further down the line you can come into some serious financial difficulties.
The Benefits of using a Buy Now, Pay Later scheme.
Now, there are some benefits to using a BNPL scheme! If you manage the scheme correctly then it shouldn’t cost you any more or put you in a worse financial position!
1. They are Free to Use
One of the biggest reasons why people are drawn to BNPL schemes is because they are completely free to use! Klarna has no interest added or late fees!
2. Planning ahead
As most repayments are monthly, you can plan around your finances for the best possible payment date. This ensures that you will always be able to pay, and not fall into arrears.
3. Credit Limits!
Every user of a BNPL scheme has a unique set credit limit, the same way that a credit card will have a limit.
How we can help!
If you think you have a problem with Buy Now, Pay Later schemes or around credit in general, there is help available!
Your Students’ Union Advice Centre can provide advice and guidance on Income Maximisation and Financial Hardship. Make an appointment here.
The Universities Money & Guidance team can advise around managing your money & budgeting tips. Make an appointment here.
There are also external non-profit agencies that you can get support from, including Citizens Advice, StepChange and National DebtLine.
Links:
Citizens Advice
StepChange
DebtLine