Buy now, pay later can cost you a packet eventually
These deals may be tempting but they often have huge, hidden expenses, warns Chiara Cavaglieri
Saturday 15 February 2014
It is almost as if the credit crunch never happened. Walk down any high street, or flick through any TV channel and you are guaranteed to see an offer of buy now, pay later or interest-free credit for big purchases. Managed perfectly, some of these deals can be an acceptable way to spread the cost, but be warned: these credit agreements can have huge, hidden expenses.
Many leading mail-order companies offer "buy now, pay later" (BNPL) finance deals with no interest to pay and this can be an attractive option for anyone looking for a more flexible way to pay for goods. However, if you don't repay the entire amount in the specified time, you could face excessive charges.
For example, Argos offers a 12-month BNPL deal which charges no interest at all if you repay in full by day 365, but if you miss the deadline, you pay 29.9 per cent on the whole balance, backdated to the date of purchase. If you were to spend £350 on jewellery, that would equate to over £100 in interest, according to Which?.
The consumer organisation also found that Freemans backdates interest to the date of delivery, charging 34.9 per cent annual percentage rate (APR) if you don't pay off the full balance within the BNPL period.
Littlewoods charges even more at 36.9 per cent, but worse: it backdates interest to the date of your order, even if wasn't delivered until a later date. K&Co.com and Very, which are both part of the Shop Direct brand along with Littlewoods, also charge interest from the order date, but the revert-to APR is only revealed to shoppers "upon successful account application".
Gareth Shaw at Which? says: "Some 'buy now, pay later' deals may charge you interest on the whole balance even if you're just a single-day late in repaying, so always check the small print and repay on time to avoid hefty penalty fees."
Lenders should put all their charges in the terms and conditions but you need to be crystal clear in your own mind as to how these are applied. You may also be offered add-ons such as shopping insurance, or "life event plans" to cover your repayments if you are unable to work, but these can be comparatively expensive and difficult to claim on.
If you're buying a big-ticket item such as a car or furniture, you may be offered a hire purchase (HP) agreement instead. Typically, you put down a 10 per cent deposit and pay the rest in monthly instalments over one to five years with interest. This can work well if you are disciplined and put money aside each month, but look at charges as well as the APR because there may be administration fees at the beginning and the end of your arrangement.
Crucially, you must never lose sight of the fact that you do not actually own the goods until you have made all of the payments.
Forecourt finance in general can be complicated and the onus is on you to get to grips with the true cost of any agreement you make.
Lucy Burnford, founder of Motoriety.co.uk, says: "These plans can help you buy a car you could not afford to buy upfront but, when it comes to financing a car purchase, it's essential to read and actually understand the terms of the contract before signing anything. Boring as the small print is, it's crucial to know exactly what you're paying for."
Car dealers often use flat interest rates to make a loan look cheaper, because while an APR is charged on outstanding debt, a flat rate is charged on the original amount borrowed, which means that in the last year you still pay interest on the whole loan. As a very rough rule of thumb, an APR will be around double the flat rate.
There are pitfalls with personal contract purchases (PCP) too. Here, you are effectively hiring the car – with the option to return it, buy it for the agreed amount, or return it and make another deal – but the car's end value is decided at the outset.
David Black of Consumer Intelligence says: "PCPs are based on agreed mileages, and if you exceed that mileage there will typically be a fixed additional charge for each extra mile. If the car's not in good condition at the end of the agreement this could hit your pocket too as its resale value will be less. The finance agreement will be for an agreed term and it will generally be expensive if you want to terminate it early."
An unsecured loan is often a better option. If you have a decent credit rating you can get competitive rates of under 5 per cent APR if you're borrowing between £7,500 and £15,000.
Credit cards can catch you out too, so take the time to read the small print and if your credit-card company sends you a change of terms notice, don't ignore it.
Even leaving your card in a drawer could be an expensive mistake as some credit-card providers charge a fee if you don't use it regularly. These dormancy fees are relatively rare on new cards being issued but they may apply to existing cards and are more common on prepaid cards. Similarly, some store cards charge a "credit balance fee" for holding a positive balance. These cards already carry exorbitant interest rates, usually close to 30 per cent, but Santander-issued cards such as the Topshop and Debenhams store cards also whack you with a fee of up to £10 if you have a credit balance for three consecutive months.
Charlotte Nelson of Moneyfacts.co.uk says: "Try not be get sucked in by the discounts at the till as there are often better standard credit cards on the market. These cards not only have a lower rate of interest but they can even offer 0 per cent on introductory purchases for a fixed period and even cashback."
Avoid using a credit card for cash advances, which usually refers to ATM withdrawals but can also include transferring money into another account, gambling and betting transactions, traveller's cheques and foreign currency. Not only do you pay a separate, higher rate of interest (typically over 25 per cent), but you may also be charged interest from day one as well as a fee of around 3 per cent and foreign usage fees (around 2.99 per cent) to boot if you're using your card at an ATM abroad.
Mark Dampier: 'We're on our own in retirement. They've pulled pensions to pieces'
HSBC becomes first bank to offer five-year fixed rate mortgage with interest rate under 2%
Crippling PFI deals leave Britain £222bn in debt
Pension freedoms: How to deal with cold calls from scammers
Barclays new Blue Rewards hands cash to customers. What’s the catch?
- 1 Alan Rickman admits editing 'terrible' script with friends in Pizza Hut behind backs of writers on Robin Hood: Prince of Thieves
- 2 Rarest Beanie Baby of them all could be sold for £62,500 on eBay
- 3 Driving while dehydrated can be just as dangerous as drink driving, study suggests
- 4 Ben Affleck asked TV chiefs to hide slave-owning ancestry, new hacked Sony emails published by Wikileaks claim
- 5 Farmer told to tear down mock-Tudor castle after hiding construction behind hay bales
If I’m being racially abused I don’t need a stranger with a saviour complex to rescue me
The only black face in the Ukip manifesto is on the page about overseas aid
Ukip is the only main political party to not address LGBT rights in its manifesto
Food banks: One million Britons will soon be using them, according to Trussell Trust
Religion isn't growing, it is becoming vigorous in its demise, says philosopher AC Grayling
BBC election debate: The one photo that summed up the whole 90-minute leaders debate
iJobs Money & Business
£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...
£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...
£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...
£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...
Day In a Page
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000