In today's buy-now-pay-later culture there is usually only one winner. Companies that make goods instantly available on credit target those who might not otherwise be in a position to afford them and offer something that, on the surface, seems like a great deal. The truth usually involves a colossal APR, a crippling repayment system and, in many cases, unnecessary insurance policies and threatening follow-ups.
These companies, such as BrightHouse, allow customers who can ill afford to build up debt to make seemingly low-cost weekly payments, which can lead to them paying back up to three times the original value of the item.
This is an industry that depends on the custom of those who will struggle to afford household and luxury items through normal means; those without a solid monthly income, those who have bad credit, those who cannot borrow from high street banks and other lenders. A large number of people who find themselves in this situation are social housing tenants, used to budgeting on a weekly rather than monthly basis, and buy-now-pay-later repayment plans are particularly appealing to them.
As a social landlord, there has never been a more important time to safeguard our tenants from debt. We hear daily reports of increases in the cost of living and the north-east jobs market continues to contract, but we need to recognise that we live in a consumer society. The distinction between which goods are luxury and which are essential can be blurred and we cannot convince tenants that they should only make purchases they can truly afford outright.
However, we realised we can create a competitor with a similar weekly payment model which doesn't overcharge our tenants. Last year, we launched a scheme that allowed tenants to buy white goods, such as washing machines, cookers and fridge freezers, through small weekly payments. We recently extended the scheme in response to requests from tenants who wanted to be able to purchase a wider range of items without the huge mark-ups available through high street buy-now-pay-later companies.
Our scheme now offers sofas, beds, bikes, TVs, computer tablets, washing machines, and fridges among other things, with most weekly repayments coming in at under £5. A 32" plasma TV would cost £956.80 through a leading buy-now-pay-later company, with customers being charged £9 a week for three years. The same TV purchased through our scheme will cost £447.20, with customers charged £4.30 a week for two years.
Tenants can only purchase one item at a time and must go through three credit checks before we will approve their application. We've also teamed up with local credit union Moneywise that will work with customers struggling with their repayments to arrange an alternative payment plan.
Although this scheme will initially only be offered to Your Homes Newcastle residents, we hope to extend it to other housing associations in the north east in 2014 and across the country the following year. Hopefully, this will go some way towards reducing the grip high street buy-now-pay-later companies have on those who can least afford their offers.
Neil Scott is director of tenancy services at Your Homes Newcastle
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