Warning for shoppers as major supermarket adds ‘risky’ buy now, pay later option

SHOPPERS are being warned about a "risky" new buy now, pay later payment option available at three big-name brands.

Sainsbury's, which owns several popular household names, has partnered with Klarna to offer buy now, pay later (BNPL) options at three brands.

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Millions of people use these payment plans every year.

It means that customers shopping online at Argos, Habitat and Tu clothing can now use Klarna.

This means shoppers can now opt to pay their Klarna payments in full, within 30 days, or in three interest-free instalments.

However, experts have warned of the risks when using this service.

Andrew Hagger, personal finance expert and founder of Moneycomms, said: "Shoppers need to treat BNPL with caution.

"It may be quick and easy to use, but it's a form of borrowing just like overdrafts and credit cards - it is a debt that must be repaid on time. 

"Using it on the odd occasion for higher-value payments can make sense, but using it as your go-to payment method can be risky and cause problems in the longer term.

"You could be faced with multiple repayments to manage and risk of running up debts that you simply can't afford or manage - resulting in stinging charges for late payments and general financial misery."

Sainsbury's isn't the only household name to introduce Klarna as a payment option in recent months.

In March, Boots extended its partnership with Klarna to introduce flexible payment options online and through its app.

Other retailers offer BNPL as a payment option, including Asos, Benefit and even B&M. 

But affordability isn't the only issue flagged by experts.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: "This lending isn't regulated, so if people run into trouble, they don't have the same protection as regulated borrowing.

"If you struggle to repay, you're subjected to whatever approach the company chooses. If they treat you harshly, the Ombudsman can't step in and protect you."

What are the key problems with buy now, pay later?

When customers apply for credit through a BNPL provider, they usually undergo a "soft" credit check that leaves no footprint on their credit file.

As a result of this, other providers won’t see if you’ve borrowed money this way. That’s why it is easy to amass debts with different firms.

Even though BNPL is advertised as interest-free, if you miss payments, you could still be charged late fees. Your debts can also be passed on to a collection agency.

Some BNPL firms, including Klarna, tell credit reference agencies about late payments.

Shoppers also miss out on major consumer rights protections that come with traditional credit.

Many Brits have become over-reliant on the products and are struggling to keep up with repayments.

Citizens Advice research found last year that around one in five BNPL users had missed or made a late payment in the last 12 months, while a third of users borrowed money to repay their instalments.

The Sun revealed last year how one user built up £1,500 of debt when she fell behind on repayments after spending £475 on clothes using BNPL.

Tabby Smith, from Tyne and Wear, said it left her overwhelmed and suffering panic attacks, and she was only able to clear the debt with a loan from her mum.

How can I use BNPL without losing out?

When used correctly, BNPL plans can be a useful way of managing your finances.

The products work in a similar way to other types of credit.

The main difference is that they don't charge interest.

You usually have to make payments by set deadlines over a period of time.

If you meet these repayment deadlines, you shouldn't be charged any extra fees.

Laura Suter, director of personal finance at broker AJ Bell, said the tricky aspect of BNPL is that you can end up juggling lots of different payment dates with different providers, and if you miss a payment you'll end up with late fees and a bad credit score.

"Make sure you put a note in your calendar of when you’re due to make a payment to check you have enough money in your account to pay it – and that the payment goes through," she said.

"And BNPL is still debt – so don’t spend money you can’t afford to repay. If you wouldn’t put it on a credit card, don’t use BNPL.

"Also, don’t assume that BNPL is the cheapest and best option for you," she added.

"Weigh it up against a 0% credit card or 0% overdraft and see which would work best."

Other ways to borrow

Before using BNPL, think about your options — and find the cheapest way to borrow.

If you already have a no-interest credit card or overdraft, consider whether this is the best way for you to spend. 

Another option, which might suit those with low credit scores, is using a credit union.

The interest rate offered on these loans is substantially lower than that offered on a credit card or overdraft.

Interest ranges from 12.7 per cent APR (one per cent a month) to a maximum capped rate of 42.6 per cent APR (3.5 per cent a month).