Buy Now Pay Later options are popular for many consumers, allowing them to delay spending their hard-earned money but receive instant gratification from the item they wish to buy. You can get a Buy Now Pay Later option for many different high streets and online retailers, and the appeal, especially at this time of year, is clear to see.
Let’s look at an example – you wish to buy a new sofa. You don’t have the cash, but Christmas is coming, and you want your home to look perfect. A typical Buy Now Pay Later option might mean that you can pay in 6 monthly installments dividing the cost each month, or it could also mean that you delay the entire cost until six months.
There is no interest charge for this. It seems to the shopper that they are simply delaying the payment. On the other hand, this might feel really appealing to the shopper who has already overspent and wants to get that sofa in their home fast.
Which Types Of Buyers Are Preferring Buy Now Pay Later?
Buy Now Pay Later schemes are designed for these kinds of people – those that just don’t want to wait. But what’s the catch?
There must be a catch. These big firms won’t just offer this out of the goodness of their own hearts – they must be gaining something from the process. Well, yes – they are. Although these providers don’t charge any interest, they don’t charge late payment fees.
There are plenty of people who won’t be able to meet the payment in the deferred amount of time, either. And this is where they are caught out. It may have seemed ideal at the time, but later down the line, if the money is still not there to pay for the item, you have only delayed the pain.
It means you need a really responsible person to take up a Buy Now Pay Later scheme, and it seems consumers don’t even need to be credit-checked to take out this option.
Advantage Of Getting The Buy Now Pay Later Options?
Why would a credit check help? As summed up by Nerd Wallet, a ‘credit check’ allows a company to access the information from your credit history, understand your financial behavior, and determine the risk involved with simple money lending.
It is a really good indicator as to how you are with money. So why aren’t people’s credit scores checked when applying for a Buy Now Pay Later loan?
This seems like the best indicator of how well someone is able to manage their money and make an informed decision on getting a Buy Now Pay Later option. The problem is that because these companies aren’t loan providers, they fall outside of standard credit regulator regulations and so officially don’t need to do this credit check.
Potential Challenges Of The Buy Now Pay Later
These regulations are vital for consumer protection, and without it, the firm offering the Buy Now Pay Later option has no obligation to monitor the consumer’s affordability or provide a credit check.
It seems like a problem waiting to happen, right? And this is why so many industry professionals are sharing their concerns about this potential crisis.
This isn’t the first time that we have seen a problem like this arise, so we should be cautious. Unregulated short-term borrowing seems like an excellent option for individuals who need to access cash fast. Still, as we have seen in the financial sector before, online payday loans can prove catastrophic without proper regulation.
Wonga, a payday loan company that started out in the noughties, is the origin of a similar tale regarding new, unregulated products. It was an unprecedented time for online loans, especially payday loans, which are applied for by consumers digitally over a laptop or smartphone. The concept was brand new at the time, and as such, there was limited regulation in place to protect consumers.
To Staying In Competitions Brands Offering Buy Now Pay Later
The competition then became so fierce at the time that consumer protection was minimal. Lenders were giving out a lot of money without truly knowing the repayment capacities of who they were lending to.
Many of these people were unable to afford the loan even after they got their paycheck, causing a debt spiral for many families who went on to rely on additional loans to pay off the old ones, exacerbating the problem further—commonly known as the debt spiral now.
Buy now pay later was a real problem at the time. These payday loan companies now fall under much stricter regulations, and loan providers like Wonga have managed to stay afloat by completely transforming their products. We see a similar cautionary tale beginning to bloom for Buy Now Payday Loan companies.
Young Consumers Are Preferring Buy Now Pay Later Options
Firstly, the demographic of those people taking out this option is usually younger consumers with a weak knowledge of financial products and loan implications. These younger people should, of course, be educated and made to understand the effects of extreme debt and borrowing money above your means.
It is not just a case of clicking and receiving cash – buy now pay later is a real commitment and a decision you should not make lightly.
Those people who already find themselves in an impossible debt situation should be able to talk to a debt counselor to find a way to pay down the debt and make better financial decisions in the future.
The debt counselors should be clearly listed on national charity debt websites and be easy to contact. Buy Now Pay Later companies should also be aware of their responsibility and clear late payment charges.
This should not be somewhere in the small print – this should be repeated and clear from the start, so consumers know what they are signing up for on the website. If consumers are already in extreme debt, this should not even be an option for them, and we hope regulations get put in place soon – before a crisis occurs. Watch this space!