Interest-free credit may be harder to obtain in the future, says the home delivery expert
This month sees changes to the way popular Buy Now Pay Later (BNPL) interest-free credit schemes work, with more extensive transformations on the way. New safeguards are long overdue, says the home delivery expert
'However, there's no such thing as "free money". A report from Citizens Advice this month revealed nearly 51% of 18-34 year-olds have borrowed money to pay off BNPL debt. That's unsurprising as, by October last year, 7.7million
'However, new "sledgehammer" Government plans announced this week may swing the pendulum too far the other way and make it too difficult for shoppers to get access to free credit in the future. This would penalise those who can least afford to buy outright or pay high APR rates on their credit cards.
'The Governments says: "Lenders will be required to carry out affordability checks, ensuring loans are affordable for consumers." In other words, applicants for a BNPL loan will have to pass a creditworthiness assessment. These look at the consumer's credit risk to the lender and whether the customer can afford to repay. The future of BNPL loans for many shoppers will entirely depend on how draconian or flexible these assessments are. Shoppers failing these tests will have little choice but to pay the full cost up front or by using their (interest-charging) credit cards.
'Of course, no one wants to see cash-strapped shoppers tempted into purchases they can't afford to repay, but creditworthiness assessment plans could tip the balance too far in favour of protection for retailers and money providers, rather than helping shoppers to spread payments on relatively low-cost items.
'What needs to be kept in mind is that, unlike traditional buying "on tick" or hire purchase agreements, an online trader makes no money out of customers taking out a BNPL loan. Far from earning interest directly, or a fat commission for brokering a loan, it's the opposite. Sellers actually pay a fee to the lender to provide the credit. That means shoppers are unlikely to be pressured into a BNPL loan by retailers, given that it costs stores more if buyers pay using these schemes.
'The new rules will hit smaller online stores and those shops offering interest-free credit services in other ways, however. Under the Government's plans, lenders offering the loan will need to be approved by the
'Of course, the market does need more regulation. Under the new plans, borrowers will be able to take a complaint to the
'However, between the providers, the
'Likewise, the consequences of returning an item bought online using a BNPL plan needed clarifying. There were cases in which shoppers who returned goods had to continue paying instalments until the retailer confirmed the order had been returned and had refunded the BNPL firm. The
'BNPL payments are just one example of how retailers and their logistics partners are innovating to reduce costs and maximise the potential of technology. To find out more, see
.
(C) 2022 M2 COMMUNICATIONS, source