Money Matters: Be wary of building up debts if you use 'buy now pay later'

For many of us December is the most expensive month of the year, and having to find money for Christmas on top of the usual bills – which have all gone up anyway – is putting pressure on a lot of households.

An approach that is becoming increasingly popular among shoppers is spreading the cost of purchases through the use of buy now pay later services.

The main players in this market are Klarna, Clearpay and Laybuy.

These newer services are currently unregulated in the UK, meaning lenders don’t have to carry out the same affordability checks required of retailers offering more traditional credit accounts such as Very, Argos and Next. The Government has promised to change this, but has not said when new regulations will be brought in.

Citizens Advice has said this is landing people who would not pass credit checks by other lenders into unmanageable debt.

Research published by the charity last month said 28 per cent of people were planning to use buy now pay later for their Christmas shopping, with the figure doubling to 56 per cent among parents of primary school-aged children.

Users of these schemes will normally get to spread the cost over a couple of months in three or four smaller payments, without having to pay interest.

While this can help buyers avoid having to find all the cash they need in one go, it’s important to remember it is still debt that needs to be repaid. You are essentially giving your future self an extra bill to worry about.

Credit limits for these services vary between customers but are generally in the hundreds rather than the thousands.

However each provider won’t know if you’ve already got debt with any others, so your total debt can quickly build up if using multiple services.

Before using any of these providers, think ahead to make sure you can afford the repayments – otherwise you could get stung by late fees and your credit score could be affected.

Klarna charges a late fee of £5 for missed payments, while for Clearpay and Laybuy it’s £6.

The providers can charge multiple times if payments are missed repeatedly, though the totals are capped.

If you think you’re going to miss a payment, get in touch with the provider as soon as you can to discuss a repayment plan.

If you really need to spread the cost of a purchase, it’s also worth looking at whether buy now pay later is the best option for you compared other forms of credit which are better regulated.

If you’re struggling with debt, there is help available from Citizens Advice, StepChange and National Debtline. Wrekin Housing Group tenants can also contact our Money Matters team.