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Buy Now, Pay Later: The Risks of Financing Fashion

Fashionable girl surrounded by shoes

Buy Now, Pay Later Services (BNPLs) have grown in popularity in recent years as an alternative option to more traditional credit methods. BNPL services let you set up a payment plan when you order, allowing you to pay for your puchase in instalments. Klarna, a Swedish fintech company, boasts 1 million monthly active users and is currently the most offered 'Buy Now Pay Later' option for retailers, with a quarter of a million of them adopting the service. BNPLs are widely available across a lot of the most well known fast fashion retailers such as H&M, ASOS, Urban Outfitters, Shein, as well as extending into the luxury market with Diesel and Calvin Klein.

How do we consume fashion?

The predominance of fast fashion and social media has changed the way we engage with fashion as individuals. Instagram and TikTok have huge influences on what is considered popular and on-trend, and as a result the current generation is more willing to splash out to keep up with the pace of what is in and what isn’t. On top of this, the fast fashion industry continues to grow despite the rise in thrifting and supporting environmental causes in recent years. This suggests that there is still a percentage of the population willing to engage in unethical fashion, even for affordability in having quantity over quality.

However, despite the continuing success of fast fashion, there is evidence that more and more consumers are more aware of how slow fashion and choosing quality over quantity is a smarter investment, as well as helping the environment. This desire to buy more expensive pieces that will last certainly has the right sentiment, and offers the perspective tht more people are aiming to fight for causes through the way they engage in fashion.

The mentality of 'Buy Now, Pay Later'

The issue the BNPL option presents is the idea that we can buy and own clothes, even if we cannot afford to pay for them fully upfront. Spending a large of sum of money on clothing feels de-risked when paying in smaller, more affordable increments. Klarna is available across a number of fast fashion websites, where the general rule is buying more for less. The idea that buying clothes can become even more affordable in spreading the cost, can encourage unhealthy spending habits. As mentioned before, BNPLs have also branched into some luxury retailers and many industries outside of fashion. In times of economic uncertainty, people may also feel paying in instalments allows them to still engage in healthier fashion habits, even if their financial situation is less favourable.

In actual fact, mismanaging instalment payments can lead to money and debt issues in the future. Most financial agreements are contracts, in which you agree to make regular payments to the company willing to let you borrow their money to pay for goods. If you are responsible and on top of payments, there should be no negative outcomes of using BNPL services. You could actually benefit from it as it illustrates that you are responsible and likely to make payments on time, which can boost your credit history (but not your credit score directly). However if you agree to make payments and fail to do so, it can land you in debt and still being responsible for paying. This can affect your chances of being eligible for finance options in the future, such as being considered suitable for a credit card or mortgage.

Issues have also been raised about data security and regulations around these services, which can be easily overlooked considering how widely available they have become across various industries.

Education and awareness is key

BNPLs are not inherently bad financial practices, however the choice to buy things is a part of personal financial responsibility. As much as it can bring us happiness, financial education is important to ensure we make well-informed choices. How we handle our money and our choice to take on financial agreements can have an impact on our future, positively or negatively. Despite this, knowledge about credit history and how to manage money are still not essential lessons in formal education. This means that being financially aware comes down to us individually. Fortunately, there are a growing number of resources out there that are aimed towards teaching young people about money and becoming financially responsible.

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