Finance: Good or bad idea?
You are the sole decider as to whether it is a good or bad idea.
Please be advised that this article is based around the United Kingdom.
In 2020, we live in a society where it is far too easy to buy expensive things that we cannot afford through one simple payment plan: finance.
Millions of people have fallen into this trap and have now looming overheads probably because they did not read the small-print. We can finance pretty much everything we come across regardless of how much it costs, to £20 tops on Missguided or £1000 package holidays on Expedia. Is this a good idea? Or are we just asking for trouble?
Car Finance
Nearly everyone I know that has a car, has it on finance. If this was 10 years ago, this would not be the case. New cars are made more attractive than ever, salesmen and women are far too good at their jobs these days, do not care what financial state that you are in and there is far too much that us as consumers do not understand when it comes to car companies.
I am ashamed to say that I am a victim of such finance. When I purchased my car, I was offered many add-ons to “protect” my investment. Actually, the whole thing just turned out to be a pretty expensive investment and there is nothing really to protect it.
Guess who didn’t read the small print…
Why is car finance such a major thing now? Because cars are simply too expensive. There are some absolutely beautiful cars out there and that is the primary issue. They are compact with every gadget possible; self-parking, heated seats, heated steering wheel (pointless if you ask me), multi-coloured lights on the inside of the car and so many more.
So, when does it all go wrong? One answer: when you miss a payment. There are multiple types of car payments you can be offered and regardless of which one you choose, when a payment is missed you are in trouble unless you can pay it back immediately.
Two or even three missed payments can lead to your car being repossessed although the rules may be different for different car companies. Even if you do just miss one payment, it can seriously damage your credit score.
Klarna
Klarna is a “Buy now, Pay later” scheme for online shopping. It was established 15 years ago in 2005 but in 2019 there was a huge surge of companies who added Klarna as an alternative payment option. You may have heard of its major competitors such as Clear Pay and Lay Buy.
A list of big retail companies that use Klarna include: ASOS, JD Sports, Gymshark, Halfords, Sunglasses Hut, there are over 200 companies worldwide that use it. Here are a few examples of how Klarna can work:
- You can simply choose to Pay Later in 30 days interest-free at the checkout.
- You can spread the cost of your payments over three interest-free instalments.
- You can choose a 6–36 month financing option, also known as consumer finance. If you pay the full amount within 6 months there is no interest rate.
Sounds way too easy and good to be true, doesn’t it? Well I can confirm that it does do what it says it does. You buy something now and you pay for it later. However, it can get very bad very quickly and you may find yourself with a damaged credit score, in a nasty amount of debt or even in court.
When does it all go wrong? Once again, when you miss a payment. 3 days before your 30 days are up, Klarna will send you an email stating “Remember to pay for your order from *insert shop* by *insert due date”.
Unfortunately, if you forget to pay then you will find yourself automatically charged a late fee which could be anything up to £35 CONSECUTIVELY until you fess it all up!
Mobile Phones
Everyone has a phone and nearly everyone pays per month. I find that a lot of my friends are now preferring to pay (stupid amounts) for a phone upfront instead of pay monthly and get a sim card package deal.
Admittedly, I do not know how much money you can save per month if you pick a package deal. What a can tell you is, you don’t want to miss a payment. Your phone provider can decide to cut off your services if you do not sort out your missed payment and this can also damage your credit score.
To sum it all up, DO YOUR RESEARCH BEFORE YOU PURCHASE ANYTHING ON FINANCE.
You are the sole decider as to whether it is a good or bad idea. A plus side to finance is that it can boost your credit score if you do not miss a payment. It does not matter what age, race, gender or anything else. If you find yourself in the finance trap, I’m afraid you will not be given much sympathy from any bank nor a ‘Get Out of Finance Debt’ card.