UK households struggling with soaring energy costs are being tempted to resort to ‘buy now, pay later’ finance schemes to spread out payments on their electricity and gas bills as the coronavirus crisis cost of living is getting worse, according to consumer groups.
Energy and debt advisory groups have warned that the “really worrying” development is a sign that individuals and families are having to resort to increasingly “desperate” measures to cover basic expenses.
Energy Support and Advice UK, which runs a Facebook-based advice service for consumers worried about their bills, posted a warning on its site this week to deal with ‘buy now, pay later’ (BNPL) offers for help deal with rising energy costs with “extreme caution” after detecting a growing number of publications on such financial arrangements.
Gemma Hatvani, founder and chief executive of Energy Support and Advice UK, warned that some households were bypassing their suppliers and tempted into deals with BNPL, even if they were “just delaying the inevitable”. “It’s really worrying,” Hatvani said. “It’s going to cause huge problems.”
Buy now, pay later Zilch offers households the option of paying their energy bills in four interest-free installments over six weeks.
Zilch, which drew criticism earlier this year for promoting its food shopping and takeout services, insisted it offered consumers the chance to manage their energy costs “better ” than credit cards, which are used by millions of people to pay for electricity and gas. bills and attract high interest rates.
“Anyone who falls behind on their repayments is immediately barred from borrowing and given contacts for independent debt counseling charities,” the company said. “Zilch has never charged a late fee to a client and has never had to use a debt collection agency since its inception.”
He added that customers experiencing cash flow difficulties could choose to “suspend payments”.
But debt and energy advice groups have warned that consumers are better off contacting their energy supplier to negotiate repayments. Matthew Upton, policy director at charity Citizens Advice, said borrowing through BNPL “can be like quicksand – easy to slip in and very hard to get out of”.
Richard Lane, director of external affairs at debt charity StepChange, said: ‘Using credit to pay for essentials is a big red flag for us as a debt charity which indicates that someone has a debt problem, so it’s a particularly concerning development to see buy now, pay later for services used to pay energy bills.
Adam Scorer, chief executive of energy poverty charity National Energy Action, said the development was “another sign of how desperate things have gotten”.
The UK government is under increasing pressure over its response to soaring energy prices, which are fueling a wider cost of living crisis.
Britain’s energy price cap, which dictates the bills of 22 million households, rose 54% in early April to just under £2,000 a year on average and is set to rise further when it is next review by energy regulator Ofgem in October.
Chancellor Rishi Sunak unveiled a £9billion package earlier this year to help tackle rising energy costs, including a £200 rebate to be applied to all household bills in October , then repaid in installments of £40 over a five-year period from 2023.
But critics have pointed out that the £200 is likely to be wiped out by the expected rise in the energy price cap in October.
“The UK Government’s response is failing to provide sufficient support for those hardest hit by the energy crisis, only addressing mid-April at best. [price cap] increase,” added Scorer.