Money saving expert Martin Lewis has issued a stark warning to people using or considering signing up for ‘Buy Now Pay Later’ schemes.
On his Money Show Live programme, he told viewers to think before using firms such as Klarna, Clearpay and Laybuy, warning that they can get you into debt.
“You will have seen it there, instead of letting you pay normally in some cases they give you the option to ‘pay in three interest-free instalments’,” he said on the ITV show.
“This is being marketed often at young people - it’s even been talked about in some ways as a lifestyle choice - but it is not.
“It is a debt,” Martin emphasised, “and it should be treated as a debt.”
‘Buy Now Pay Later’ schemes have exploded in popularity recently, as more people turn to shopping online as non-essential shops close for the national lockdown.
Some people use them in order to get quicker refunds when returning items of clothing.
Others find them a cheaper alternative to other options such as spending on a credit card, when looking to spread the cost of products over a period of time.
But a review by the Financial Conduct Authority found that these products are often seen by consumers with a poor credit history as a viable alternative to more traditional forms of regulated lending.
Because the schemes are not generally recorded by credit reference agencies, it can be easy to accumulate £1,000 of debt without this being visible to other lenders, the review found.
On his show last night (February 4), Martin continued: “Used right like other debts, it can be good.
“If you’ve got a planned, one-off budgeted spend, you can spread it for free across three months if you need that.
“But it can also be bad - if you miss a payment it can hit your credit score and debt collectors can come to you.”
A big negative of the schemes, according to the finance guru, is that they are unregulated.
This week the Treasury confirmed it will change that, with new checks introduced.
Under the plans, providers will need to undertake affordability checks before lending and ensure customers are treated fairly, particularly those who are vulnerable or struggling with repayments.
Klarna said it “wholeheartedly supports the regulation of the buy now, pay later sector in the UK”.
It said in a statement: “We agree that regulation has not kept pace with new products and changes in consumer behaviour and it is now essential that regulation is modern, proportionate and fit for purpose, reflecting both the digital nature of transactions and evolving consumer preferences.”
While Clearpay added: “We welcome today’s recommendations and look forward to working with the FCA, the Government and stakeholders to build on the consumer protections we already provide to create the applicable regulation for the sector.”
The Martin Lewis Money Show is broadcast every Thursday from 8:30pm on ITV.
