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How to dodge a financial hangover this Christmas

There's no avoiding the pressure to spend more at Christmas. But before you get tempted at the checkout by Klarna or Clearpay, here's what you need to know about Buy Now, Pay Later...

Post updated: December 2nd, 2020

4 minute read

christmas finances

With the pressure on to spend money this time of year, money experts say using a credit card responsibly can help spread the cost. Likewise, using a 0% purchase credit card allows you to pay off your Christmas spend over a few months without paying interest. Or a cashback card can be a savvy option as it actually earns you some rewards when you shop.

But what about Buy Now, Pay Later being offered at most checkouts now – is that a good idea?

Buy Now, Pay Later explained

Buy Now, Pay Later lets you can spread the cost of your purchase – interest free – over a number of weekly instalments, or pay it off as a lump sum at a later date.

You don’t have to go into your overdraft. Unlike credit cards or store cards they don’t require a hard credit check or come with any fees. And the approval process is almost instant when you get to checkout.

You’ve probably heard of the main providers of Buy Now, Pay Later.  Klarna for example works with 6,500 retailers including ASOS, Peloton, Superdry and Samsung, while Clearpay provides the service for M&S.

The retailer covers the cost of the credit and the Buy Now, Pay Later providers get a cut of the sales they help retailers to make.

The risks of Buy Now, Pay Later

While it certainly has benefits and provides flexibility, the worry is that Buy Now, Pay Later is just too easy to obtain. It’s promoted heavily at the checkout, and in marketing emails, in a way which could push more people into debt.

The repayment period is often much shorter than a credit card, usually over a matter of 6 weeks.

If you miss your reminder to pay or are unable to pay what you owe at the time it is due, you could be charged a fee. Charges could soon mount up and debt collection agency’s get involved. Late or missed payments can impact your credit score.

Black marks stay on your credit record for six years, so missing a payment on a pair of trainers when you are 18 could end up affecting your chances of getting a mortgage when you’re 24.

Only Klarna claims that your credit score will never be impacted when using its 30-day and 60-day repayment products, even if your debt is passed on to a debt collection agency.

Ways to protect your credit score this Christmas

  1. Only apply for a credit card if you know you’ll be accepted. If a lender sees you’ve applied for multiple cards over a short period of time (i.e. if you’re trying to get a credit card to spread the cost of Christmas) you’re going to look a little bit irresponsible and, perhaps even, desperate. Check you’re eligible for the card before applying
  2. Don’t apply for too many store cards. Let’s be honest, it’s certainly tempting. But too many credit searches will not go down favourably with lenders. What’s more, if you’re late making a payment the interest you’ll be charged will immediately cancel out any saving you made.
  3. Watch out for scams. Scammers are, unfortunately, not a seasonal occurrence. However, they do tend to be more prevalent at Christmas. And if a scammer gets your financial details, not only can they take your money they can also make applications for credit in your name and damage your credit score in the process. Be careful when shopping online. Credit checking agency ClearScore advises sticking to websites you trust, watching out for emails from big brands that have grammar or spelling mistakes and strange website addresses.
  4. Stay on top of bills. It’s easy to lose track of what day it is throughout the Christmas period. Make sure you don’t miss any bills or payments by setting up direct debits wherever possible.
  5. Cut all ties It’s a sad fact that many relationships break down over the Christmas period. In fact, statisticians who studied Facebook posts for a research project found December 11th is the most common day of the year for couples to break up. If you’ve had any finance agreements with an ex-partner, whether a mortgage, a loan or even just shared bills, their credit history can be considered when determining your score. Make sure you inform the credit reference agencies that you’re no longer together by asking for a ‘notice of disassociation’.

What’s you experience of Buy Now, Pay Later? Let us know in the comments below?

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