A UK Personal Finance Blog – The result of direct exposure to the fallout of the financial crisis.


Is it buy now pay later or buy now pay more?


Find in Debt August 24th, 2012 - 8,694 views

There are many things that happen in life which need quick and decisive action.

Things like the washing machine breaking down when you need to get the kids’ school clothes clean, the car conking out which you avidly rely on to ferry you to work every day or your TV going on the blink when the race is about to start.

If you have emergency funds you will be able to get these things repaired or replaced but what happens if you don’t have the money to hand or don’t have insurance to cover it?

One option a lot of people consider is to buy new on a finance.

It seems these days that nearly every retailer out there is offering some kind of finance deal and one such deal that remains popular is ‘buy now pay later’.

For small purchases this scheme isn’t really fit for purpose but for buying big items such as white goods for the kitchen, high-end electrical goods or furniture it can come in handy and work out to be a sensible option by spreading the cost.

The premise of buy now pay later is as simple as it sounds. You buy a product now and start paying for it at a later date.

Often these schemes are run over the course of several years. You could have a year where you pay nothing and then begin paying off the balance over an additional 48 months for example.

Sounds great but how do you know you’ll be able to afford the repayments in a year’s time?

In life you can never know what is around the corner so taking out these deals is always done with a little bit of speculation thrown into the mix.

According to DirectGov’s guidelines for borrowing, any person taking out credit should first ask themselves whether they can realistically make all the payments and whether they can get a better deal by shopping around.

That’s sound advice, but sadly many people sign up to agreements on impulse or because they just can’t say no to that charming salesman. Logical thinking goes out of the window and before they know it they are saddled with a debt they neither need nor can afford.

With so many retailers offering credit, people who are already stretching their budget can soon find themselves getting behind with their payments.

Something else to be aware of when looking at credit options is the total cost of the item. While there are interest free offers out there (particularly from the large furniture stores), a large proportion of finance deals still work on the basis that you will be charged interest on your debt.

This is when ‘buy now pay later’ becomes ‘buy now pay more’.

Interest charges aren’t the only way in which retailers offering credit squeeze a few extra pounds out of consumers. Often the items offered on monthly terms will be priced much higher than the product’s actual RRP.

Despite this, recent figures show that the number of people buying items on monthly credit terms has risen sharply in recent years.

When the credit crunch hit in 2008, millions of households found themselves without the level of disposable income they had previously enjoyed and understandably needed to look at other ways to pay for things.

As a result the number of items like sofas and televisions, bought on store credit rose by 24% during the first three months of 2009 and has showed little sign of slowing down since.

For people looking at taking out finance, the advice is clear and simple; only do it if you are sure you can afford the payments and always make sure you check to see if there is a better deal before putting pen to paper.

Debt advice is available for people who find themselves in sticky situations but the problems that lead them there are best avoided whenever possible.

Unforeseen circumstances can lead to unavoidable turmoil but with careful financial planning it is possible to be prepared for the worst.

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