Klarna's new buy now pay later loyalty scheme 'encourages overspending', warns charity

BUY now, pay later firm Klarna's new loyalty scheme "encourages overspending", a charity has warned.

The payment method is popular among young shoppers and can be used to pay for online orders at retailers like ASOS, Misguided and Topshop, even if they don't have enough cash to buy it.

You can then pay off the debt in instalments and you don't have to pay any interest on the purchases.

For some shoppers, it could be a slippery slope into a spiral of debt encouraging spending cash they can't afford to pay back.

Klarna has recently launched a loyalty scheme called Vibe in the US, which rewards shoppers with points for using it to pay for goods.

Once enough points have been collected, customers are rewarded with gift cards and "shopping experiences".

Help available for those in debt

IF you're struggling with debt, here are some options you might want to consider

And if you're unsure what the right option is for you, speak to a free debit advice organisation, such as Citizens Advice.

Debt management plan (DMP)

A DMP is an informal agreement so you can stop it at any time and resume the normal debt repayments, or adjust your payments if your circumstances change, like you lose your job.

It ends when you've paid off the debt so it could last for decades.

Many firms charge a fee for the service, either upfront or one that's incorporated into your monthly payments.

If you're struggling due to coronavirus, contact your DMP provider so it can liaise with lenders on your behalf.

Debt relief order

If you're struggling to meet your IPA or IPO repayments, these can be updated if your income changes. You must contact your trustee immediately if this happens.

Equally, if you get a lump sum while you’re paying an IPA or IPO, you may be asked to make a one-off payment from it.

A DRO is way to have your debts written off if you have under £20,000 of debt and no assets.

You have to pay a £90 fee but you don't have to make repayments and after 12 months your debts are written off.

You can't apply for a DRO if you're a homeowner. It will negatively affect your credit score for six years and it may be difficult to get credit during this time and details will be published publically.

Bankruptcy

Bankruptcy is a last resort if there is no other way to repay your debts. It usually lasts a year but it can be up to three years.

A bankruptcy practitioner called a trustee will take control of your assets and sell them to repay your debts.

If you can afford it, the trustee will ask you to make regular payments towards your debts from your income through an income payment agreement (IPA).

If you can’t agree on payment amounts for an IPA, the trustee can apply for an income payment order (IPO). If you don’t meet these payments, the trustee can then apply to extend your bankruptcy.

It is much more difficult to get credit after bankruptcy and your credit rating will be affected by up to six years.

You could lose your house, possessions and some professions won't let you work if you've been made bankrupt.

If you own a business it could be sold and the details of your bankruptcy will be published publically.

You have to pay a £680 fee to go bankrupt.

 

It hopes to bring incentive to the UK next year but debt charity StepChange has warned it has "obvious risks".

Sue Anderson from the charity told The Telegraph: "By tempting people to aspire to reach the thresholds needed to unlock rewards, customers are being encouraged to divert their focus away from whether or not the underlying spending is affordable, and potentially to spend more."

There are other buy now, pay later schemes in the UK, such as ClearPay and LayBuy, but Klarna would be the first to reward loyalty.

Klarna says that the scheme is designed to give shoppers flexibility and convenience when it comes to paying for their orders.

Points will only be awarded once customers have completed their paymentson time.

Luke Griffiths, UK general manager at Klarna, told The Sun: "Every time a customer makes a transaction using Klarna, we run a variety of checks including affordability assessments where we re-assess their ability to meet their obligations and evaluate if the product which they wish to use is suitable for them at that time.

"We recognise that people’s financial circumstances may change and therefore do not lend to everyone every time, or offer an open line of credit on our pay later products."

There is no set date for when Klarna plans to launch the reward scheme in the UK.

These types of firms have been criticised for the long term affects of the short-term payment plans if shoppers can afford to pay it back.

If you're unable to pay then it may be passed onto a debt collector.

Other forms of buy now, pay later schemes may affect your credit score if you miss a payment.

As a result, borrowers could end up being rejected for a mortgage, loan or even mobile phone contract.

 

 

 

 

 

 

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