Shoppers face a new year debt crisis after the use of Buy Now Pay Later schemes surged by £1billion at Christmas.
As a result, total festive spending using the method, which lets consumers pay for products in instalments, has been put at £3.3billion by financial planning experts Credit Karma.
It said this is 43 per cent higher than last year with more than half of shoppers viewing it as ‘easy credit’.
Which?, a consumer organization conducted research. Many users don’t know the implications of late repayments.
This could include penalties fees and a blackmark on the credit history.
The scheme is being offered by a growing number of retailers including Harrods, Guess and others.
According to Credit Karma’s study, nearly half of those struggling to manage their Buy Now Pay Later debt have seen their credit rating drop.
Ziad El Baba, from the company, said: ‘[The scheme] becomes problematic when consumers borrow more than they’re able to comfortably pay back.’
Which? Research by Which? suggests that many people don’t understand the implications of not paying repayments for Buy Now, Pay Later plans
While the government consults on regulations, Which? Which? claims that delays are making consumers more vulnerable.
They are calling for more protections for consumers. These include steps during the checkout process that ensure customers understand they are borrowing money as well warnings about possible risks.
The agreement states that consumers should receive key information at every transaction, including payment terms, late fees, and possible consequences for missing payments.
It also argues for affordability assessments by firms before regulation is introduced.
Which? Director of Policy and Advocacy, Rocio Concha (correct), said: ‘BNPL schemes can offer speed and convenience at the checkout, but our research shows that many users do not realise they are taking on debt or consider the prospect of missing payments.
‘That is why there must be stronger safeguards to protect consumers and warn about the risks of using the schemes.
‘There must also be no further delay to plans for BNPL regulation, which should include much greater marketing transparency, information about the risks of missed payments and credit checks before consumers are cleared to use BNPL providers.’