Buy now, pay later: Warning over use of credit cards to cover payments

By Kevin Peachey
Personal finance correspondent, BBC News

Woman online shoppingImage source, Getty Images

Young shoppers risk building up debts by borrowing money to make buy now pay later repayments, Citizens Advice says.

Half of 18 to 34-year-olds used different types of credit - such as credit cards or borrowing from family - to make the payments, it said.

Although the results were drawn from a survey, the charity said the answers highlighted the issue of people relying on one debt to cover another.

Changes are being made that make some of these debts clearer to lenders.

Buy now pay later has become a commonplace method of payment and credit for UK shoppers in recent years. It allows people to pay for purchases in instalments over a short-term fixed-payment schedule, and interest-free.

Some 17 million people in the UK, including 30% of those aged in their 20s, have used it. While popular, it has led to concerns over levels and visibility of debt - particularly as budgets are squeezed by the rising cost of living.

Citizens Advice surveyed 2,288 people who had used buy now pay later during the past 12 months.

It found that most (52%) made repayments from their current account, but 23% used a credit card, 9% used a bank overdraft, and 7% borrowed from friends and family.

'I was struggling'

Millie Harris, a debt adviser at Citizens Advice in East Devon, said: "Most of the people I speak to who are using buy now pay later live off overdrafts and credit cards, so are using these for repayments. It is just relying on one debt to pay off another debt.

"What scares me most is how easily people can slip into using it. 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."

One in 10 people in the survey said they did not fully understand how repayments would be set up.

Chloe Porter, from Birmingham, used to use buy now pay later and admitted she was uneducated about credit.

"When I moved out [from her parents' home], I was struggling to keep the repayments up and I ended up having to use credit cards to make the repayments. I just dug myself a hole," she said.

Since the start of June, banks and credit companies have been able to see whether shoppers use services from Klarna - the biggest buy now pay later company in the UK.

The firm said this could help or hinder its customers' ability to get credit for loans such as mortgages, but did offer more clarity to potential lenders.

Buy now pay later firms have been under pressure from watchdogs over contract terms and conditions and they information they give to credit agencies. Stricter regulation is expected soon.

The biggest operators in the UK are Klarna, Laybuy and Clearpay.

A spokeswoman for Clearpay said: "Globally, 90% of Clearpay transactions are made with a debit card and 95% of instalments are paid on time, demonstrating that our customers use their own money to pay for purchases and that they understand how our repayments are set up."

She said the company was supportive of good regulation.

Earlier in the week, technology giant Apple said it was planning to launch a buy now pay later option for users of Apple Pay, initially in the US.