The UK has been dealing with the energy crisis for a few months now and it does not seem that the situation will improve anytime soon. On the contrary, energy prices keep going up, making energy customers pay more for their energy supply.
The government introduced certain aid programmes to help people cover the rising costs of energy but the solutions it proposed are not enough. More and more families are facing fuel poverty, which is a situation where a big proportion of a family’s budget is spent on the energy supply. Now, increasing numbers of people around the country struggle to pay for basic necessities such as food or medicine after settling their energy bills.
Not knowing how to deal with the situation, some are turning to desperate measures such as ‘buy now pay later’ loans. Here we take a look at what these loans are and we analyse the disadvantages that come with them.
What are ‘buy now pay later loans’?
‘Buy now pay later’ loans are also referred to as BNPLs. They allow people to make a purchase, receive it immediately, and pay for it at a later date. Payments are usually made in instalments. BNPL payments come with interest rates and late fees for those who fail to make a payment in time. There are many providers that offer them so exact rates and fees vary.
This type of loan is not a new invention but as people are struggling to cover the rising costs of getting their energy supplies, they are growing in popularity in the UK and around the world.
As ZDNet reported, ‘BNPL is projected to be the world’s fastest-growing payment method both online and in-store between 2021 and 2025, according to Worldpay’s 2022 Global Payments report. By 2025, BNPL is expected to account for 5.3% of global transaction value, or approximately $438 billion.’
When it comes to energy bills, BNPLs allow people to spread the costs and pay for their bill not at once but over a certain period of time.
Why you should avoid ‘buy now pay later loans’
Some people think BNPLs are a great option because it allows them to pay a number of smaller sums rather than one big bill all at once. Nevertheless, BNPL can easily turn into a big debt that can be difficult to repay. After all, in between the instalments, you still have other expenses and you keep using the energy that you will be billed for next month. Hence, getting a BNPL might lead to you having troubles giving back all the money you own in the future.
Moreover, BNPLs come with interest rates so you will actually end up spending more money than if you paid your energy bill using just one payment. Similarly, if your payment is missed or late, you might have to pay additional fees.
And, sometimes when people are tempted by using the services of BNPL providers that offer lower interest rates, they find themselves stuck with a deal that lacks transparency. Then, there might also be hidden fees that they have to pay.
So, what should you do if you are struggling to pay your energy bill all at once? ‘debt and energy advice groups warned that consumers were better off approaching their energy supplier to negotiate repayments,’ Financial Times reports.
Your energy supplier is aware of the situation on the energy market and they can help you find a solution and make it easier for you to pay your energy bills.