If previously the hire purchase in Britain was a tool used by young people, now it is increasingly used by the elderly, writes Sky News. And experts are concerned that people are turning to installments without thinking whether they will be able to cover the payments. This phenomenon is partly attributed to the prevailing crisis in the UK.
Experts say there is a big demand for installment payments in the UK, Sky News wrote on its website. But if before the main customers of such system were people born in 1980s and early 1990s, now such loans are increasingly used by the older generation and people with higher incomes.
A recent survey shows that more than a third of Britons said they had used instalment plans in the past 12 months. But the survey’s authors see a link to the ongoing crisis in the UK, as 42% of installment users admitted they had to use it for the first time this year.
One of the biggest companies in the field, Klarna was founded in the early 2000s as a counterpart to PayPal. But then it gained international popularity thanks to its instalment payment option. Initially it positioned itself as a ‘try before you buy’, which meant that customers could make online purchases and then return anything that didn’t fit without spending any money. Now Klarna has partnered with market giants like ASOS and gained competitors.
And in the face of growing financial pressure and skyrocketing inflation, more and more customers are rejoicing at the possibility of splitting their payments into smaller, more manageable instalments, experts say. The more so now it is possible to buy almost everything from home appliances to takeaway pizzas in instalments.
So far, it is people in their 20s and 30s who use instalment plans the most. The fastest growing age group using instalments is the people over 55. The survey shows that 18% of those over 55 years of age have used instalment plans, and half of them for the first time in the last year.
The respondents say, for example, that they buy luxury goods by installments – so they do not have to wait for sales or empty their savings. And some are even resorting to instalments for the sake of their credit rating.
“In the future, if I want to apply for a loan for something for the house or decide to apply to help my children buy a house, without a credit rating I will be refused,” the author of the article quotes 60-year-old Peter Cartwright as saying.
Not all installment firms report to credit agencies, but more than half do. So if consumers are paying their instalment payments on time, it may raise their rating, and if they are late on payments, it may lower it.
But experts are concerned that installment payments are growing in popularity among the elderly. Almost 20% of people over 65 used instalments last year – up from 10% the year before. After all, instalments used to be seen as a tool for the young to finance a fast fashion habit. Now, experts suggest, older people will use instalments to buy expensive goods such as laptops and telephones.
However, experts are concerned that two-fifths of users are struggling to repay the debt they have incurred, with many turning to family and friends to pay off the debt.
In addition, experts have concerns that the ease of instalment payments may encourage people to spend more than they can afford. For example, some sellers create sales and other mechanisms to do so. The buyer doesn’t pause to think, sometimes they don’t even realise that they have taken out a loan, albeit in the form of an instalment plan.
Klarna representatives emphasise that with instalments, just like with a loan, responsibility is important. According to them, the average instalment payment is only about £70, and it is usually short term. Unlike a normal loan, instalment goods do not add up but are counted as separate debts, making them easier to keep track of.
And some people even use this scheme: they put all the money they have into a short-term savings account, so that it earns interest, and use the hire purchase themselves.
The British government has drawn up new laws which will regulate this sphere and give important rights and protections to borrowers. They have already been published, but they will only come into force in a few months’ time. In particular, they regulate how customer information is to be handled, as well as the need for customer checks before lending, writes Sky News.
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