‘Buy now, pay later’ on the rise
These are uncertain times. Unemployment is on the rise, property prices have crashed leaving many with negative equity problems, savings are attracting low rates of interest and the nation has tightened its belt. Or so it seemed. There may be an area of growth right now after all- in the ‘buy now, pay later’ finance sector.
It appears though that while it looks like spending has slowed right down, the Financing and Leasing Association (FLA) have collated figures that show that lending through buy now pay later hire purchase agreements totalled £231 million in March- an increase on 24% from last year.
Instalment credit actually represents quite a small sector of consumer credit. A total of £5.1 billion was lent by FLA members in total in March, down 12% from a year before. This includes lending such as credit cards and, crucially, home loans which alone fell by a massive 76% over the same period with lenders continuing to struggle to raise money through the wholesale money market. So, overall consumer finance is still being hit by the downturn and people are still wary of taking on large debts.
The trend for buy now pay later is being partly attributed to the fact that retailers are desperately trying to tempt shoppers through the doors by offering more items on hire purchase than before and by offering very attractive 0% interest on instalments. That and, with negative and low-positive equity putting many people off of a move, it seems that people are turning to home-improvement instead with small-value instalment loans against new furniture and electrical goods.
Geraldine Kilkelly, head of research and chief economist at the FLA, said: “Overall, consumer finance is still being hit by the downturn. With a depressed housing market many people are choosing to improve their homes and replace furnishings rather than move house.”
The agreements are typically for amounts less than £1000, with payment arrangements ranging from a few months to four years.
Although one consumer credit provider said that 81% of its finance deals were interest-free, a spokesman for Credit Action is worried that it’s the poorest that will suffer. The FLA confirmed that the availability for loans remains scarce and those in socially deprived areas may be falling foul of these deals which often work out to cost much more than buying a product outright. He can see the attraction in falling for these deals in today’s credit-crunched climate, but at a potentially high cost.
People who buy items on finance do not actually legally own the item until it is paid off and it cannot be modified or sold and of course, can be taken back if repayments are not met- increasing the attraction to retailers offering these deals due to increased security. People are being warned not to take on any finance unless they are absolutely sure that they will be able to afford it in the future- especially if they are hit by unemployment.
The chances of defaulting on such small loans are much lower, but anyone fearing they may be falling behind in their payments should contact their lender in the first instance to try to come to some agreement.
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