A student has issued a notice over ‘buy now, pay later’ firms after her online shopping habits crippled her credit score.
21-year-old Erin Phillips who lives in the UK insists that she noticed her credit score cut by half after missing payments with online payment service Klarna.
‘Buy now, pay later’ firms provide customers the opportunity to pay for online purchases after the fact, either in a single lump sum or in installments spread across a span of time. The flexibility has created Klarna and other ‘buy now, pay later’ services like Clearpay and Afterpay (Bare Minerals, Fenty Beauty, Forever21) a success with customers.
However, debt charity Stepchange advised that customers are not always fully informed of the commitments and consequences of utilizing these services, which can cover credit checks and engagement of debt collection agencies, and called for greater transparency.
Erin explained how she used Klarna to spread out the cost of purchasing new clothes online. Problems started when she missed several payments and finally led to Erin’s credit score being cut by half. The student told that she was not made fully informed of the risks connected with missing payments.
Klarna did not clarify on Erin’s individual case but told the debt is only passed to a debt collection agency if the debt remains unpaid after ‘several months’, during which time the customer is contacted ‘repeatedly’ and asked for repayments.
Erin, who is an organized and fiscally responsible student, added: ‘I was quite naive, and I didn’t believe this little shopping would affect me so much, usually within £20 and £80. If I had acknowledged, I would have just used my credit card.’
Sue Anderson, head of media at Stepchange replied: ‘For some point, we have been showing concerns regarding the transparency to consumers on the commitments and consequences associated with using ‘buy now, pay later’ services.
Customers seeing to use buy now, pay later firms should make sure they will have sufficient money to be ready to pay for the item at a later date. In this position, you could potentially discover yourself stuck in a debt cycle or with a bad credit rating affecting future purchases.