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Un-manageable debt has many forms. From a family with arrears on a 100% mortgage to students surviving with the help of high-interest rate credit cards. A relatively new form of debt, and one which often leads to people struggling with money are ‘Buy Now, Pay Later’, agreements.

A debt charity has advised that for many of the Scottish people who come to them for help with money worries have found themselves in financial trouble because of ‘Buy Now Pay Later’ type contracts. One in five of the advisers who took part in research into how and why debt occurs have reported that over 50% of their clients have an unaffordable ‘BNPL’ plan on their list of debts.

Hire purchase and interest-free credit have always been a part of the retail market in the UK and, much like bank loans, this type of payment plan is generally well regulated. The customer is subject to credit and identity checks as well as a lengthy application process.

The new form of delayed payment is much easier to access and provides the temptation to spend much more than the customer can afford.

Debt problems

The details of the investigation and the role BNPL is playing in debt problems has been passed to the Financial Conduct Authority.

Here at Scotland’s Trust Deed we have a team of experienced debt advisors and part of our service is to provide those customers we are helping with debt with the advice and the tools they need to budget and manage their money better in the future. Only spending what you can afford is a large part of the essential discipline which keeps people free from debt and BNPL is the opposite of this.

Payment platforms such as Paypal offer credit at some part of every transaction. They want the customer to only spend a portion of what they were planning to with a ‘deposit’, encouraging them to go back and spend more.

The report that is now with the Financial Conduct Authority confirms what the team at Scotland’s Trust Deed know. People are prone to misjudging their capability to pay off the BNPL deal in full and forget that the extra, unplanned for amount they have spent online needs to be paid back. This leads to them paying the unexpected bill by taking out short term, expensive loans or putting it on a credit card.

Half of respondents hadn’t seen the BNPL plan as a type of debt

The bargain BNPL deal a customer was initially so happy with has caused them to spend more than they could afford, experience the stress of a ‘surprise’ bill and rack up interest on a credit card or loan. Nearly half of the respondents who were featured in the investigation hadn’t seen the BNPL plan as a type of debt and didn’t fully understand what they were signing up for.

The ease of the BNPL options presented at the point of an impulse purchase appears to be a great idea at the time, spreading the cost is ‘sensible’.

Should you have found yourself in debt because of a BNPL agreement, then contact our helpful and experienced team at Scotland’s Trust Deed for support and advice on 0141 297 1178.