Is buy now, pay later the new financial crisis for millennials?

Splashing out on a new wardrobe has never been easier. Shopping for amazing fashion under the guise of buy now pay later (BNPL) has seen a new generation face increased debts, specifically for buying clothing and accessories.

Once the maxim of credit card companies, where spending large sums on big ticket items could be paid in instalments, it is now possible to “slice” the price of an H&M dress costing as little as 35 dollars that can be paid over four instalments, interest free.

The perks

Shop now and pay over time is appealing to a generation who appeared to be risk-averse, but who value newness, testament to their social media accounts filled with posts of novel fashion looks, often daily. For cash-strapped millennials or those who don’t have credit cards, pay later services sound enticing.

The marketing departments of Klarna and Clearpay, two companies that offer payment over time services, emphasise that shopping is fun, aiming their youthful campaigns to invididuals who may be spending beyond their means and encouraging them to take on more debt.

According to This is Money, “Klarna frequently tags Love Island contestants in its Instagram posts, while Clearpay’s website looks more like a store rather than a financial services business, with a rundown of its most popular retailers.” These companies sell an opaque idea to help consumers be in control of their finances. As Klarna says on its website: ‘You can manage your cashflow without maxing out your card!’

Don’t buy what you can’t afford

Debt management charity DebtChange states the flexibility of BNPL payment options means not having to wait until you have the money in your bank account before shopping. For people looking for the best bargains and deals that are only available during a limited timeframe this can be handy. BNPL is also convenient for online clothes shoppers, as it lets you ‘try before you buy’. This means you order clothes or shoes, and then if you don’t want them, you can return them before the first payment is taken.

BNPL providers are popular with online retailers because they make it less likely that shoppers abandon their baskets, but the charity recommends cancelling your purchase is exactly what you should do if you can’t afford to buy.

Debt is stressful

Data published in the Financial times shows polling by YouGov in 2016 found that more than 85 per cent of under-35s found the idea of being in debt stressful. Nearly three-quarters of them thought their lives were “more uncertain than for previous generations”, and fewer than half agreed with the statement “I trust banks and building societies”.

Also noted in This is Money is one in ten interviewed by Compare the Market stated they did not know that missing payments using BNPL could affect their credit score. Complaints service Resolver has seen a boom in complaints from BNPL customers - more than 10,000 in 16 months.

Slicing a fashion purchase into installments or delaying payments until a later time comes with consequences. It may be a solution for the short term, but over time could cause longer term debt problems and create an unhealthy reliance on credit cards and overdrafts as users struggle with repayments.

Images courtesy of Klarna