Klarna has announced it will be launching a physical ‘buy now pay later’ credit card in the UK allowing users to defer payment of purchases for up to 30 days, in line with the “Pay in 30” product the Swedish tech giant currently offers online.
The “Pay in 30” option allows shoppers to spread the cost of payments over 30 days without incurring any interest or late fees charges.
While ‘buy now pay later ’ providers allow shoppers the chance to purchase items without making an instant dent in their bank account, like a credit card, there are risks to such schemes that can lead people into unwanted debt.
Nick Drewe, a money-saving expert at discounts platform Wethrift, shares the risks associated with using credit cards, what people should consider before applying for the new physical Klarna card, and tips for those who do find themselves in debt after getting too carried away with the ‘buy now, pay later’ mentality.
Nick explained: “Buy Now Pay Later schemes offer consumers a quick payment option that lets them delay or split the cost into more digestible chunks, but, they can also become a potential entry point onto a road of damaging debt and financial issues.
“It is important to understand that online retailers that offer the option of paying via weekly or monthly instalments often fail to thoroughly explain the full terms and conditions to customers. However, the likes of late fees, background credit checks and interest repayments are factors that should be pointed out to the customer straight away.”
At the moment, despite working to come to an arrangement with credit reference agencies, Klarna doesn’t report any spending or missed payments, which means credit scores are not affected when other lenders look into your payment history.
And many people may not be aware that using, then repaying, small balances on a credit card is one of the best ways to build up a credit score.
But like other forms of debt, it’s important to fully understand the risks associated before committing yourself to any kind of financial contract or agreement, especially as millions of households across the country are facing a financial squeeze this year due to the ongoing cost of living crisis.
Before applying for the Klarna credit card
While it’s all well and good wanting to build up your credit score, you must make sure you have enough money in the bank to make the repayments when they are due.
Nick explained: “Many people will often make purchases on ‘buy now pay later’ schemes right before payday when their bank account is feeling less healthy, but it’s important to factor in the costs of these purchases and whether you will be able to comfortably afford them after the likes of rent/mortgage, electricity bills, supermarket shopping and other monthly payments come out of your bank at the end or the start of the following month.”
He continued: “With the UK’s cost of living continuing to rise, money is becoming tighter for many Brits, and solely relying on credit card schemes to fund those additional purchases can be dangerous if you are struggling to pay for your standard monthly ones.
“There are several positives to the Klarna ‘buy now pay later’ schemes, including price drops and the ability to negotiate deals on discounts with high street and online favourites that other retailers and shopping sites can’t match.”
“In a nutshell, if you are able to discipline yourself when using a Klarna credit card, there are certain positive aspects to be made to your future credit score- as long as you don’t overspend and get yourself into debt you cannot get out of without borrowing more money,” Nick added.
Top tips if you are struggling with your finances
Make a budget
If you have different types of debt, making a budget to categorise your most high priority expenses, like rent and food, will really help.
In order, you should:
- Work out your total income
- Make a list of your monthly outgoings
- Deduct the total amount you spend each month from your monthly income
If you have any money left over after you’ve paid for everything you have a ‘budget surplus. If you’re spending more money than you’ve got coming in you have a ‘budget deficit’.
Decide which bills to pay first
It is important to know what your priority and non-priority bills are. An example of a priority debt would be your rent or your mortgage, as opposed to your direct debit for Netflix, or the meal subscription box you treat yourself to once a month.
Come to terms with your buy now pay later debts
It is important to accept you are in debt and start changing the way you spend. If you are struggling to make repayments, there are a few ways you can get debt help for buy now, pay later payments.
For example,some brands offer payment holidays and revised payment schedules to help users pay back what they owe.
Help with finances
If you are worried about debt or upcoming payments you cannot afford, seek help or advice from a non-profit charity such as Citizens Advice Scotland, Christians Against Poverty or StepChange Debt Charity.
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