The pros and cons of buy now pay later schemes

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The pros and cons of buy now pay later schemes

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Posted on: 10/05/2023

The Financial Conduct Authority (FCA) has consistently warned companies who offer ‘buy now pay later’ schemes that they must regularly warn consumers of the risk of debt.

Failure to do so would be ‘misleading’ and at worst be a breach of regulatory rules, according to the FCA.

Platforms such as Klarna, Clearpay and Laybuy have ‘buy now pay later’ schemes, and often have social media influencers advertising the offers.

Such deals allow consumers to purchase products on (often interest free) credit and pay for them at a later date, either in full or split over several pre-agreed payments.

However, such offers must also include debt risk warnings. Companies could be committing a criminal offence over misleading and harmful adverts by failing to warn people of the risks of taking on debt they cannot afford to repay, the FCA has said.

The regulator raised concerns over financial adverts, particularly on websites and social media, that did not include any potential debt risks.

So-called influencers have advertised the ‘buy now pay later’ schemes on their individual social media platforms, such as Instagram, without including risk warnings, which has been frowned upon by the Financial Conduct Authority.

The Authority say that “it is vital that any adverts are clear, fair and not misleading.”

Some adverts could fail to warn consumers of the consequences of missed payments (such as late fees), not making clear when the charges become payable, or the impact on people’s credit scores.

Consumer champion Martin Lewis has also had his say on the buy now pay later schemes.

Commenting on the plusses and minuses, Mr Lewis did highlight that the schemes ‘might be useful’ for those people who had a clear understanding of their finances, and had a spending and repayment plan in place, but he also warned about the ease in which people can use the scheme, and the marketing of them. Mr Lewis pointed out that someone using these type of services has to recognise they are taking on debt, which if not carefully managed, could cause issues in the future.

Due in part to the posts put out by social media influencers, there appears to have been a clear marketing strategy aimed at younger consumers.

Mr Lewis added: “This has often been marketed at younger people. It has even been talked about in some ways as a lifestyle choice, but it is not. It is a debt and it should be treated as a debt.”

If you afford to not borrow money to cover costs then that should be your option, not buy now, pay later.

However, the majority of the schemes can be free to use, unless of course you miss repayments. Neither Klarna, Clearpay or Laybuy charge any interest or fees for using their services.

  • One of the key takeaways from all this is that Buy Now Pay Later schemes can be okay as it spreads out the cost of a purchase which can make buying certain items easier for people. However, it isn’t recommended that you use them if you aren’t confident you can make the agreed repayments. And such schemes are starting to face increasing regulations which are likely to lead to more consumer protections from the regulator.



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