Two million shoppers have damaged credit scores through Klarna-style buy now pay later schemes
OVER two million shoppers have damaged their credit scores using "buy now pay later schemes", according to new research.
Experts warn that people could end up getting rejected for a mortgage, loan or even mobile phone contract because of a late or missed payment using schemes like Laybuy, ClearPay or Klarna.
Hundreds of retailers including H&M, TopShop and JD Sports now offer "buy now pay later" schemes, where shoppers order items and then pay for them in instalments or after a set period of time, usually 30 days.
The arrangement means that you don't pay interest on purchases - but if you miss a payment that the company may charge a penalty fee, use debt collectors to recoup the cash and your credit history could be negatively impacted.
While almost half of shoppers saying they chose to use a scheme because they could not afford to make the payment up front, according to ComparetheMarket's study of 2,000 people, experts are warning that these schemes could be misunderstood.
John Crossley, from comparison website ComparetheMarket, warned that such schemes "...are encouraging people into taking on more debt that they perhaps realise."
While complaints service Resolver has seen a boom in complaints from customers - over 10,000 in 16 months.
The majority of gripes from customers - some 2,500 - are over charges and fees issued by the firms.
Martyn James from Resolver, said: "The unprecedented number of complaints Resolver is seeing suggests that retailers and credit companies are not nearly being clear enough about how buy now, pay later credit works and the consequences when people miss a payment deadline.
"This needs to be addressed before it spirals out of control."
John Crossley from ComparetheMarket.com added: "Failure to pay outstanding bills can damage your credit score and result in a spiral of outstanding payments which could jeopardize important life milestones like buying a house.
I'm worried my credit score will be affected
IN December, Nathaniel Stewart used Klarna to book flights through a travel website to Peru costing £562.
But after his first payment in early December failed the 40-year-old from Birmingham has been struggling to resolve the issue - and now he’s worried it will impact his credit score.
He told The Sun: “The stress I’ve been through over Christmas is unbelievable.
“They won’t take the payment and I’m really worried it’s going to affect my credit score”.
Nathaniel booked the flights using Klarna to spread the cost and immediately set up his payment method using his credit card.
When the first payment failed he contacted Klarna and says they told him that it must be an issue with his bank.
Nathaniel contacted his credit card company who confirmed the error was not on their side - but more than a month later Klarna has still not successfully taken the payment.
Nathaniel added: “The payment is due to fully paid by 3 February and then I’m worried I’ll get threatening letters.
“I offered to pay them the full balance on the credit card.
I feel like they are making it difficult for me to pay it.”
The Sun contacted Klarna about this issue and it confirmed that it will resolve it.
A spokesperson added: “Our priority is to ensure our customers have the best possible experience when shopping with Klarna, so customer service is extremely important to us. “We encourage any customer experiencing a problem with one of our products to get in touch with our Customer Service team, who will work quickly to rectify the issue.”
"It is concerning that many of these schemes appear to be targeted at younger demographics."
Klarna and ClearPay told The Sun that no customers' credit scores have been impacted by using their pay later or pay 30 days later products, even if they have failed to pay on time.
They also do not report missed payments to credit reference agencies for those products.
Although Klarna does offer "Financing" to customers, with payment plans between 6 - 36 months.
If a customer uses this then they agree to a hard credit check and sign a regulated credit agreement and are told about non-payment implications.
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If a customer fails to pay on time then credit reference agencies are informed and this may impact their credit score.
Luke Griffiths, from Klarna UK, said: "Less than 0.5 per cent of Klarna UK customers have their credit score impacted as a consequence of missing payments."
Gary Rohloff, from Laybuy, said: "We integrated independent credit scoring from day one because it’s the most responsible way to look after our customers' welfare and to set appropriate credit limits. As a result of this, and our policy to never charge interest on any purchases, ever, we have an extremely low payment default rate.
He added that if a customer can't make a payment then Laybuy will work with them. It doesn't sell outstanding debts and will only pass on debts if it has been more than 45 days without communication from a customer.
He also stressed that Laybuy conducts independent, credit and affordability checks using Experian for all new accounts. It also makes it clear to customers that use Laybuy that a check will take place.