There seems to be more options than ever to get instant gratification without having to pay for it right away.
Buy now pay later (BNPL) apps like Klarna, Clearpay and others may seem like a good idea, but they aren’t always.
Buy now pay later is a credit agreement, just like a credit card or credit account.
The websites for these services do mention it’s credit but aren’t always clear how much interest you’ll be charged or by whom.
Unfortunately, the overall costs and terms often aren’t as clear or as well defined once you’re in the app.
BNPL apps
There is nothing wrong in principle with buy now pay later if you know what you’re getting into, how much you’ll be charged, who you will be charged by and who regulates the app.
Most of the current apps are not regulated by the Financial Conduct Authority (FCA) so you won’t have the same kind of protections a credit card offers.
The two BNPL apps I mentioned, Klarna and Clearpay offer free borrowing for some services, which isn’t true for some I have seen.
Klarna does charge 18.9% APR for some services though, which you don’t find out until you dig into the terms and conditions.
There are also late fees, which you must dig around the website to find.
For example, Clearpay charges £6 for every missed payment, which you don’t find out until you get to the footer of their ‘How it works’ page.
So far, so fair, but it would be better for apps to be clearer about any interest charged or fees levied.
Borrowing as a lifestyle
While not explicitly stated, many BNPL apps target younger users (18+). The colours, tone, language and images are all obviously targeting younger users.
This risks turning credit into a lifestyle.
While credit is a part of life, we don’t want it to become an everyday occurrence. Neither do we want people getting used to instant satisfaction without the instant cost.
As soon as you separate the financial cost from a transaction, it becomes much easier to spend.
It’s a psychological foible everyone has and one that is leveraged by retailers across the world.
Make checkout as simple as possible or avoid it altogether and people spend more.
Even one degree of separation between purchase and the payment can make a huge difference.
We can acquire whatever we like, whenever we like without linking what we buy with what we pay and that’s dangerous.
Even the most self-controlled person will have trouble managing consumption when it’s like this.
Again, there’s nothing wrong with buying on credit or with these buy now pay later apps.
There is something wrong with normalising credit and with potentially spending more than we can afford.
The downsides of buy now pay later
Aside from borrowing as a lifestyle, there are other downsides to buy now pay later.
One significant downside is the impact it can have on your credit score.
Using a BNPL app and always paying on time will not impact your credit score. In fact, if the app reports to the credit agencies, it may even benefit your score.
However, if you miss a payment or get into financial trouble using one, it will have the opposite effect.
Your score could go down and markers placed on your report for late payments. This can definitely impact the chances of accessing credit in the future.
It won’t always come to that, but you must fully understand the ramifications if you want to use a BNPL app.
Finally, buy now pay later apps are currently unregulated. While market forces keep everyone largely in check, a company can literally do what they like within the current law.
That’s not great, especially if that same company can impact your credit score and future credit prospects.
Again, there’s nothing to say these apps would do that, but you have little or no control over whether they do or not.
You also have no regulator oversight or access to an ombudsman to help mediate any disputes.
If you can’t buy with cash don’t buy
I have to say this as Saving Superstar is a money saving website…
If you cannot afford to pay for what you’re buying with cash, can you afford to buy it at all?
The simple answer is no, aside from using credit cards if you want to receive Section 75 protection or don’t have cash to hand.
If you need to borrow to buy, the smart choice would be not to buy at all.
That’s it, I have said my piece. If you want to use a buy now pay later app, make sure you know exactly what you’re getting into!
Check for interest charges, late payment charges and any charges or conditions related to using the app.
