Buy now, pay later warning as Apple and Zopa launch split payment options
SHOPPERS are being urged not to take on too much debt as Zopa became the latest firm to jump into the Buy Now Pay Later market today.
The bank has introduced its own BNPL service - a scheme which lets you spread the cost of a purchase across monthly instalments.
But money experts have issued stark warnings on the risks of this type of debt.
The method of payment means you can pop an item straight into your online shopping basket and the cash won't come out of your account in one lump sum.
BNPL instead allows shoppers to splash out on goodies that would normally take months to save up for, and pay in instalments.
Usually you must clear the balance within 30 days or fees may be charged.
And industry experts are worried that shoppers are rapidly falling into debt through the schemes.
read more in money
The problem comes if you miss an instalment or don't repay the money within the agreed time frame. At this point charges can rack up, making it harder to clear the debt.
An estimated eight million adults owe money on BNPL purchases, according to most recent figures from reference agency Credit Karma.
An average of £538 per person is owned on BNPL, with total debt standing at a massive £4billion.
And nearly two in five of BNPL shoppers have borrowed money to pay back their debt, according to Citizens Advice.
A quarter relied on credit cards, with others asking friends and family, leaning onto loans or dipping into their overdraft.
Most read in Money
Young people are the most likely to owe, with more than half of 18-34-year-olds having borrowed money to pay off BNPL debts.
That compares to 39% of 35-54-year-olds and 24% of over-55s.
The most popular BNPL providers - Klarna, Clearpay and Laybuy - have been up and running for a while.
Their services are available on a number of popular websites like H&M and ASOS.
The UK’s BNPL market is worth £6 billion and 20million people already use this way of shopping.
Because of its popularity, there are calls for rules on BNPL to tighten up as it becomes a more popular way for consumers to buy and the Financial Conduct Authority is looking to regulate the market.
In response to Citizens Advice research, Alex Marsh, head of Klarna UK, said: "This data does not reflect how consumers use our BNPL products: The percentage of consumers using credit cards to make Klarna BNPL payments is far, far lower than those in this survey.
";Klarna offers interest and fee free short term credit with structured repayment plans and transparent terms and conditions.
"We check someone’s ability to repay on each and every purchase, apply spending limits, and we restrict our services after missed payments helping keep people out of revolving high cost debt with credit cards."
Apple to launch BNPL
But the industry is set for shock waves when Apple arrives on the scene in autumn.
The tech titan will launch Apple Pay Later on its new iPhone in the US.
The service will work wherever there is Apple Pay both online and in stores.
The move will allow people to split payments on their phone into four instalments, which they can pay over six weeks.
Zopa, which launched its BNPL service today, focuses on big ticket items worth between £250 and £30,000 to help consumers make bigger purchases.
But experts say it is better to save up until you can make the payment in full.
NatWest is also planning on rolling out the service from this summer, following HSBC and other banks in offering the payment option.
Meanwhile, Amazon teamed up with Barclays to offer BNPL for orders over £100.
More regulation is needed
Citizens Advice is calling for more regulation to protect consumers, especially as one in 20 BNPL shoppers admit they don't fully understand how the repayments work.
Millie Harris, debt adviser at Citizens Advice East Devon, said: “It’s heartbreaking to see parents who can’t afford their children’s clothes or shoes, turning to Buy Now Pay Later, thinking it’s doing them a favour.
"In reality it’s just more debt and more creditors, on top of what they’re already facing.
“What scares me most is how easily people can slip into using Buy Now Pay Later.
"They come to rely on it much more quickly than other forms of credit. It’s just a few clicks at a checkout.
"Too often that means people don’t realise how serious it is; that it is credit and there are consequences if they don’t repay it.”
Dame Clare Moriarty, chief executive of Citizens Advice, added: “The spiral of debt from Buy Now Pay Later to credit cards, loans and even payday lenders shows it’s not a risk-free alternative.
"Buy Now Pay Later is part of the credit industry and must urgently be regulated as such.”
How to get debt help
Taking on any form of debt should always be a last resort. Interest charges can quickly mount up, making it harder to clear what you owe.
Shoppers should make use of vouchers and cashback where they can, instead of resort to credit.
And expert say the crucial thing is to never borrow more than you can afford to repay.
If you miss payments, it can impact your credit score, which could stop you getting a loan, credit card or mortgage in the future.
READ MORE SUN STORIES
Read More on The Sun
If you are worried about debt, speak to your lender, which may be able to offer you an affordable payment plans.
Debt advice charities such as , or may be able to offer you guidance.
We pay for your stories!
Do you have a story for The Sun Online Money team?
Email us at [email protected]