10 Million Britons Were Using Buy Now, Pay Later Services In 2019, and 20% Have Now Damaged Their Credit Scores
11 Jan 2020
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- Two million British people have reported that their credit score has been negatively impacted after they failed to make timely repayments to buy now, pay later service providers.
- 60% of all buy now, pay later users didn’t know about the impact missing a payment could have on their credit history.
The buy now, pay later scheme being offered by service providers like Klarna as well as Laybuy had become very popular among Britishers in the past year.
This initiative allowed shoppers at hundreds of retailers around the country to make the purchase of items they wanted from their favorite brand without paying anything for it at that time. Then, customers were required to make repayments over the next few weeks, without incurring any interest expenses.
However, missing repayments was still going to cost customers their hard-earned credit score. And, according to reports, two million people in the country have indeed damaged their credit rating as a result of using such services.
The data, collected by ComparetheMarket
from 2,000 adults in the UK, also showed that 20% of people in the country had used the buy now, pay later service in 2019, out of which 20% had missed a payment.
Missing a payment on a buy now, pay later service can result in a reduction of 130 points in a borrower’s credit report. This will remain on their report for six years, potentially preventing them from being able to secure any other form of credit.
Alarmingly, only 40% of users were aware of such repercussions on their credit history from using the service, as per ComparetheMarket’s data. However, since these buy now, pay later services are targeted towards the young adult demographic, it is understandable that the majority of users did not consider the impact of non-payment on their credit scores.
Now, customers are increasingly demanding retailers to make efforts to clearly explain buy now, pay later services to their customers interested in using them, clearly emphasizing the impact of missing a repayment. This makes sense because retailers do promote the use of such services in case customers are unable to pay upfront.
However, according to Klarna
, one of the companies providing buy now, pay later services in the UK, a user’s credit score may only be impacted in case they opt for the financing service with Klarna. In case only the pay later option is used, a user’s credit score will not be impacted even if and when they fail to make payments on the specified due date, because Klarna does not approach any credit reference agencies to report such missed payments.
When it comes to financing products, Klarna conducts a hard check of an applicant’s credit history, thereby impacting their credit report. These loans carry a repayment term of 6-36 months, and the repayment behavior of the borrower throughout the loan term does impact their credit score.
According to Klarna, customers of such loans are well-informed about their loan obligations and the repercussions of missing timely payments before they sign-up, and in case they still fail to make timely repayments, this is reported to credit reference agencies by Klarna and hence, the borrower’s credit score is damaged.