Buy-now-pay-later grows in popularity, as secured lending dies

Posted in 'Credit Crunch' by Richard Catlin

02 June 2009

The number of people opting to take out ‘buy now pay later’ deals in shops has seen a big increase in the past year, as consumers look to take advantage of more readily-available lines of credit to improve their homes.

Figures released by the Finance and Leasing Association (FLA) show that lending on products such as credit cards and secured loans fell in March, compared with a 24% jump in the levels of in-store credit, comparing the same period in 2008.

The ongoing recession has seen most lenders tighten up their acceptance criteria, thus making credit harder to come by. In contrast, retailers are ultra keen to keep sales up, so deals that allow consumers to spread the cost of their purchase are now much easier to come by. This is largely because the retailer has a profit margin in the deal, which far exceeds interest rate returns.

But be careful to distinguish between in-store credit of the 0% credit variety and Store cards. Store cards are generally a very expensive way to shop unless you intend to clear the balance in full each month and are best avoided.

Retailers will always run a credit check on customers as part of the ‘buy now, pay later’ deals, so it’s best to check your credit report yourself before hitting the shops to avoid embarrassment.

The reduction in overall borrowing by consumers has been well documented but it is secured borrowing – usually in the form of second mortgages, secured personal loans and debt consolidation - that has been hardest hit in the credit crunch. The number of secured loan providers in the UK dwindled even further last week, leaving just three companies fighting over what business there is.

Tumbling property prices is the main reason behind the contraction of an industry that has seen 14 providers withdraw completely in the last 2 years. High profile examples include the Carol Vorderman fronted First Plus and the people behind those cringe-inducing television adverts, Picture Loans. Fighting the tide, if you’ll excuse the pun, is Ocean Finance - going as far as launching their own dedicated channel on digital television.

Take-up of unsecured personal loans has also fallen. Despite the Bank of England base rate holding at a record-low level, typical APR’s have actually increased over the last two years – from 8.6% in 2007 to 12.4% now. There are welcome exceptions. Both the Alliance & Leicester and AA personal loans offer a typical APR at a much more affordable 8.0%.

Whether it’s a credit card, loan or in-store finance that you’re looking to apply for, you can make sure that everything is as it should be by checking your file at checkmyfile. You can significantly increase your chances of being accepted first time by choosing a lender matched to your credit score. Our credit reports can be based on any one, or all three credit reference agencies, and come at the UK’s lowest prices.