Buy Now, Pay Later – do you know you are taking out a loan?

• Buy Now Pay Later products have become a way to pay including at Christmas
• Central Bank research shows that many consumers do not realise that Buy Now, Pay Later is a form of credit
• The Central Bank has tips for consumers on how to avoid missing payments and the consequences of over-indebtedness

The Central Bank of Ireland is advising consumers to be aware of what it means to use Buy Now, Pay Later, which is a popular way to pay for Christmas shopping.

Buying a product with Buy Now, Pay Later means paying for goods and services in instalments. The first instalment is paid when you buy, whether you buy at a counter or online, and the remaining balance is actually given as a loan, and is owed as a form of short-term credit from a Buy Now, Pay Later lender.

Typically, no interest is charged on the part of the payment, which is a loan. However, many Buy Now, Pay Later agreements can include administration fees, including for late or missed payments.

Today, the Central Bank released research that shows many consumers are not aware of the risks of using Buy Now, Pay Later to pay for goods and services. 22% of consumers do not have a full understanding of how Buy Now, Pay Later works, and 36% think that Buy Now, Pay Later is a method of payment rather than a form of credit. The findings also show that when consumers make a purchase they tend to be focused more on the monthly payment amount rather than the total amount borrowed.

While paying in instalments can be convenient and is a legitimate form of credit, a loan comes with obligations and additional fees if you miss a payment. Again, the research shows that 38% of Buy Now, Pay Later users agree that Buy Now, Pay Later has made them ‘more likely to purchase things they don’t need’ and 43% agree they ‘often spend significantly more money than planned when they use Buy Now, Pay Later’.

Gerry Cross, Director of Policy and Risk at the Central Bank, said “We want to support consumers during the Christmas shopping period, by asking them to think about the risks associated with using short-term credit, such as Buy Now, Pay Later. Before you click on that button online, or sign the form in-store, you should think about whether short-term credit is the best option for your needs.

“Before you buy, make sure you have budgeted beyond the initial payment, as missed payments could bring a financial cost and have an impact on your future credit profile. And if you are finding that you are relying on short-term credit to pay for things that you could budget for previously, this could be a warning sign of potential financial difficulty.”

Gerry Cross went on to say “If you are experiencing any financial difficulty or find you are using short-term credit to pay for things you could budget for previously, you can get support with free, impartial advice from MABS. MABS provide a service to help you manage your money and take control of debt.”

Reflecting on how the Central Bank works on behalf of consumers of Buy Now, Pay Later products, Gerry Cross said “The Central Bank has engaged directly with Ireland’s largest Buy Now, Pay Later firms to ensure the terms and conditions of their products are clear and transparent for customers. Consumers must be informed clearly of all relevant information, so they can make a fully informed decision on whether this product is right for them and the Central Bank continues to monitor these areas.”

ENDS

Notes to editors

The Central Bank has published a Consumer Research Bulletin containing findings of research on the use of Buy Now, Pay Later.

The Central Bank has also published information on its website with tips on what to consider before you use short-term credit.

The Consumer Research Bulletin reveals:

• While the availability of Buy Now, Pay Later is becoming more common, there is limited experience amongst Irish consumers of Buy Now, Pay Later at present. Only 15% of Irish adults report that they currently use Buy Now, Pay Later or have ever used it previously. However, Buy Now, Pay Later is increasingly being considered by Irish consumers with 24% reporting they would consider it to fund a purchase in the future.
• Buy Now, Pay Later users tend to be younger in age (25-44 years). Those who currently or have previously used Buy Now, Pay Later are also more likely to be accessing other forms of credit, reporting higher rates of borrowing compared to the rest of the population.
• Buy Now, Pay Later appears to be associated with instances of impulsive shopping or unplanned, excessive spending. 38% of Buy Now, Pay Later users agree that Buy Now, Pay Later has made them ‘more likely to purchase things they don’t need’ and 43% agree they ‘often spend significantly more money than planned when they use Buy Now, Pay Later’.
• The findings indicate a lack of understanding on the part of consumers availing of Buy Now, Pay Later credit. Consumer knowledge of Buy Now, Pay Later tends to be limited, with 22% of users reporting not having a full understanding of the credit product.
• There are fundamental consumer misconceptions regarding what Buy Now, Pay Later actually is. The research identified that many Buy Now, Pay Later users (36%) seeing it as a payment method rather than a form of credit. We found that when availing of Buy Now, Pay Later, consumers tend to be focused more on the monthly payment amount rather than the total amount borrowed at the point of purchase.

About the Consumer Research Bulletin

The consumer research was structured under the following four broad-based questions concerning consumer understanding, attitudes and behaviours:

1. What do Irish consumers think of Buy Now, Pay Later?
2. Who is using Buy Now, Pay Later now and in the future?
3. What do users buy using Buy Now, Pay Later?
4. Why did users choose Buy Now, Pay Later when buying goods and products?

The research involved a mixed methodological approach of qualitative depth interviews and a large-scale nationally representative online survey among 3101 consumers. Within this survey, we captured the opinions of 469 Buy Now, Pay Later users¹ and 429 consumers considering using Buy Now, Pay Later.²

The findings of our research will also inform the Central Bank’s ongoing review of the Consumer Protection Code.

Supervisory engagement with firms

The Central Bank has also completed a review of the terms and conditions of the largest Buy Now, Pay Later firms in Ireland, to ensure that the terms and conditions of their products are clear and transparent for customers. Based on the findings of the review, there is still some work to be done by certain Buy Now, Pay Later providers relating to disclosure, transparency and clarity for customers in the terms and conditions of their Buy Now, Pay Later products. This includes lack of clarity and detail in how some  fees and charges are disclosed to customers and the use of some ambiguous statements in some of the terms and conditions of the Buy Now, Pay products. In addition, certain conditions could be explained more clearly to customers, such as on credit limits, repayment methods and the customer’s right to repay early or make additional repayments.

The Central Bank has engaged directly with the firms involved in the review to make the terms and conditions clearer for customers. Consumers must be informed of all relevant information, so they can make a fully informed decision on whether this product is right for them. The Central Bank will continue to engage with the sector to ensure they are operating in line their obligations to their customers and that terms and conditions are clear and transparent for customers.

Legislative and regulatory framework

In May 2022, the Central Bank of Ireland announced an extension to existing regulatory regimes following the commencement of the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022 (the Act) by the Minister for Finance. The legislation allowed the Central Bank to close a consumer protection gap so that consumers who enter into hire purchase (including Personal Contract Plans), consumer hire and indirect credit agreements (e.g. Buy Now, Pay Later) can be protected by the Central Bank’s consumer protection framework, including key provisions of the Consumer Protection Code 2012, the Minimum Competency Code 2017, and the Minimum Competency Regulations 2017.

¹Those who have ever used Buy Now, Pay Later, and/or currently have a Buy Now, Pay Later credit or used Buy Now, Pay Later within the past 12 months.

²Those who never held a Buy Now, Pay Later, but who are considering the product in the future.