The Rise of Buy Now Pay Later Schemes; Convenience or Debt Trap? *

*Collaboration

In recent years, Buy Now, Pay Later (BNPL) schemes have exploded in popularity, offering shoppers the chance to purchase items immediately and pay for them in instalments. With no immediate need to cover the full price, it’s no wonder this option has become a go-to for many consumers, especially younger generations looking for flexibility.

These kinds of schemes always leave me fascinated, as growing up I was taught to never buy things you can’t afford, and to never live beyond your means. I’d never had anything on finance, until I was advised by my Mortgage Broker that I should pop something on finance to prove I can pay back! Since then, I’ve only popped some carpet on finance and I had the money there ready to pay for it all! I’m one of those people that could potentially see BNPL as ‘not real money’ as it’s not coming out of my account when I buy the item!

But what is it that makes BNPL so appealing? After reading this very interesting blog from MoneyPlus, I’ve realised that it’s incredibly convenient. Instead of waiting to save up for a big-ticket item or feeling the pinch of a pricey purchase, you can break down the cost into smaller, manageable payments. The rise of online shopping has also boosted BNPL usage, as many retailers integrate it as a seamless checkout option, such a Klarna on ASOS.

But here’s where the issue starts, and where I’d get myself into trouble, BNPL makes shopping feel easy, it can encourage impulse buying. The temptation to purchase something immediately, with minimal upfront cost, can lead you to overspend without thinking about how the repayments will fit into your budget. With repayment periods typically between two and three months, consumers might find themselves juggling multiple BNPL commitments if they’re not careful. And getting yourself into trouble over a few new dresses you bought online isn’t really the vibe we’re after!

Something that I’ve recently learnt too was that many consumers are now using BNPL for everyday essentials, not just luxury items. Groceries, bills, and even rent are being paid through instalment plans, which points to deeper financial problems. People are turning to BNPL not because they want to, but because they need to, a worrying trend that’s contributing to rising debt, especially among younger consumers.

While BNPL often touts “interest-free” payments, missed or late payments can quickly lead to penalties and harm credit scores. Some people may find themselves in a vicious cycle, struggling to keep up with repayments and falling into debt. Rent and groceries are already at an all-time high, so using BNPL indicates that this could potentially spiral out of control!

Regulatory concerns are also on the rise. As BNPL companies continue to grow, there are increasing calls for stricter rules to protect consumers from getting in over their heads. Unlike traditional credit, BNPL isn’t as heavily regulated, meaning shoppers might not fully understand the potential risks.

Ultimately, while BNPL offers convenience, it’s crucial to use it wisely. Treat it like any other form of credit, be aware of what you can realistically afford and stay on top of your payments to avoid getting caught in a cycle of debt.