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Nearly a quarter of UK buy now, pay later customers have been charged late repayment fees

A survey that highlights “the dangerous financial risks that users face in this wild west unregulated market.”

Buy now pay later / Shutterstock

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While we mostly think of buy now, pay later as being free to the consumer, a new survey by education charity the Centre for Financial Capability revealed that nearly a quarter of users have been charged late fees.

Those fees come in the form of late repayment fees, like the initial £5 fee that Klarna introduced last year or the £6 charged by Clearpay, both of which cap their total fee at 25 per cent of the initial order.

According to the Centre for Financial Capability, 22 per cent of users missed one or more repayments in the second half of 2023, resulting in a fee.

It’s a figure that rises to 34 per cent when just looking at 18-34-year-olds, who are themselves among the biggest users of buy now, pay later.

While a third of UK adults say they’ve used pay later services in the past, it's a figure that rises to 40 per cent among 18-34-year-olds.

Obviously, the figures for each individual buy now, pay later provider will differ, Clearpay for example says that as of Q3 2023, 98 per cent of its purchases globally incurred no late fees.

“These figures reveal the ongoing prevalence of Buy Now, Pay Later schemes, and the dangerous financial risks that users face in this wild west unregulated market,” Jane Goodland, trustee of the Centre for Financial Capability said.

Because buy now, pay later remains unregulated there is no requirement for lenders to run background or affordability checks on borrowers.

Over a quarter of those who missed repayments (29 per cent) saw their credit score decrease as a result, and 27 per cent had been contacted by a debt collection agency.

“Most worryingly, our findings released today have revealed the significant number of those using the schemes who have fallen victim to late payment fees, poor credit scores and even contact by a debt collection agency,” added Goodland.

The charity is calling for the government to prioritise urgent regulation and financial education to ensure consumers are protected.

UPDATE 08-01-2024 - Added Clearpay's late fee data from Q3 2023 for context.

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