James Walker: Ugly old credit returns in seductive new guise

Remember those interest-free deals you used to get to buy a sofa or new kitchen? Well buy now, pay later credit is back with a vengeance. It’s had a makeover and you might not even know you’re entering in to a credit agreement with huge interest.

Think before you commit to any credit agreement
Think before you commit to any credit agreement

Here’s our guide on what to watch out for.

What is ‘buy now pay later’ credit?

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Buy now, pay later is a form of credit that’s been around for years, also known as “shop credit” or “interest-free deals”. The idea is you get a long “interest-free” period, typically a year or two, where you pay no interest. If you pay off the loan in that time, you pay nothing extra. But if you don’t, higher interest kicks in.

Playing mind games

The deals work on a rather clever bit of psychology. We all think that we can beat the system by paying off the goods in the interest-free period. But lots can go wrong in life on the way and many people end up paying the higher interest. This often appears with little or no warning.

Rebranding credit and debt as a lifestyle choice

People don’t like the idea of debt. But we do like the idea of choice. That’s why these deals have been rebranded as “lifestyle” choices. Ways for you to pay that are in your control. They aren’t. They’re high-interest loans in disguise. Don’t be fooled. Many loans don’t even mention that they’re a form of credit. It’s “different ways to pay”.

What’s the problem with this form of credit?

The dirty secret with lots 
of these deals is this. If you don’t pay off the full debt by the time the interest-free period is over, an often 
hefty dose of interest goes on to the remaining sum – making it hard to pay back. It’s also really hard to know when the interest-free period ends when you’ve bought multiple items from the 
same shop.

How are shops avoiding 
the small print?

Credit is regulated by the Financial Conduct Authority, who have introduced tough new rules. But shops aren’t exactly making their obligations clear, so make sure you always find out:

 When you have to pay for goods to avoid interest.

 How the shop notifies you that the interest will begin – and when.

 If the interest will apply on the full amount you borrowed.

What do the new rules say?

In the bad old days, you could have been hit with interest on the full cost of the goods you bought, even if you only had a tenner left to pay. Now, the rules say:

 Shops can’t charge you interest on the whole amount borrowed – only the bits outstanding when the interest-free deal ends.

 They have to make it much clearer how the deals work.

 They have to prompt you to let you know the interest-free period is ending.

Help, I’m in trouble with debt!

Firstly, don’t panic. Call the credit company and ask 
them what they can do to help you. If they aren’t helpful, make a formal complaint. You can also go to the financial ombudsman – a 
free alternative to the 
courts – if the firm doesn’t play ball.

Make sure you complain to the shop too. Make your voice heard if you feel you’ve been treated unfairly or misled.