UK households have been warned against resorting to buy now pay later (BNPL) finance to cover surging energy costs.
Spreading energy bills over multiple payments using the BNPL financial model has been described as a “really worrying” and “desperate” development by consumer groups.
BNPL is an instalment-based payment option provided by companies such as Zilch, Klarna and Clearpay.
Energy Support and Advice UK last week issued a warning for consumers to treat “buy now pay later” offers, particularly those related to covering energy costs, with “extreme caution”. It follows an increase in posts about BNPL financing options on the group’s Facebook page.
Gemma Hatvani, chief executive and founder of Energy Support and Advice UK, told The Financial Times that those tempted into BNPL arrangements were “just delaying the inevitable”. Hatvani added: “It’s going to cause massive problems.”
BNPL firm Zilch is among the companies offering instalment options for energy bills payments over a six-week period.
Zilch came under some criticism from consumer finance lobbyists earlier this year after the company promoted the option to extend the use of BNPL beyond large purchases into everyday food shopping.
Zilch, however, maintains that its energy bill scheme provides a better option than credit card companies.
“Anyone who falls behind on repayments is immediately stopped from borrowing any more and provided with contacts for independent debt advice charities,” the London-headquartered company said.
“Zilch has never charged a customer a late fee and never had to use a debt collection agency since inception.”
BNPL for energy costs a ‘big red flag’
Matthew Upton, the director of policy at the charity Citizens Advice, however, said using BNPL “can be like quicksand – easy to slip into and very difficult to get out of”.
And Richard Lane, director of external affairs at the debt charity StepChange, warned: “Using credit to pay for essentials is a big red flag for us as a debt charity that indicates that someone is in problem debt, so it’s an especially worrying development to see buy now, pay later services used to pay for energy bills.”
Stockholm, Sweden-headquartered Klarna – one of the largest BNPL companies – recently announced a policy to report BNPL purchases from UK customers to credit agencies.
Klarna described it as a “pre-emptive move” ahead of an expected regulatory crackdown on BNPL firms in the UK later this year.