Buy now, pay later Users in the UK are borrowing to pay their debts

By Carlyn V. Webb Last updated Jun 8, 2022

More than 40% of people in the UK who opt for such offers – which allow shoppers to pay for their purchases in installments, often without paying interest – have borrowed money to make their repayments, according to news data from the charity Citizens Advice.

Just over a quarter of customers used credit cards to pay for their purchases. Buy now, pay later (BNPL) service users also borrowed from family and friends, used money from their bank overdraft, and took out loans and payday loans – a type of short-term loan that usually incurs high interest – to meet repayments, the charity said.

“Buyers are piling on more borrowing and hoarding themselves into increasingly desperate situations that can seem impossible to escape,” Clare Moriarty, managing director of Citizens Advice, said in a press release.

Young users were most likely to take on more debt. The charity found that 51% of 18-34 year olds had borrowed money to pay for BNPL purchases, compared to 39% of 35-54 year olds and 24% of people aged over 55.

The charity surveyed 2,288 people in March who had used BNPL’s services in the past year.

The findings are likely to deepen scrutiny of an industry that has exploded during the pandemic, giving people access to cheap and easy credit, but which remains largely unregulated compared to other forms of finance.

Demand shows few signs of slowing as Britons endure the worst cost of living crisis in decades, which has forced many households to cut back on essentials such as heating or groceries.

Around 15 million people in the UK regularly use BNPL’s services, according to a November survey by Equifax, a credit reference agency. These include popular platforms offered by companies such as Klarna, Clearpay and PayPal (PYPL).

On Monday, Apple (AAPL) said it would offer US users of its new iOS 16 phone a BNPL service, allowing them to split the cost of purchases into four equal payments over six weeks.

While BNPL companies say they offer a safer and more accessible alternative to credit cards, many consumer advocates say the services can encourage people to spend more than they can afford. Many BNPL companies do not perform external credit checks on customers or communicate with each other to ensure that a user is not racking up debt across multiple platforms.

UK financial regulators have already started asking some BNPL companies to make their payment terms fairer and easier for customers to understand, despite there being no laws to enforce their demands – something the government is seeking to change.

Millie Harris, debt counselor at Citizens Advice, said in the press release that most of the BNPL users she advises “live on overdrafts and credit cards”.

“It’s heartbreaking to see parents who can’t afford to buy clothes or shoes for their children, turn to buying now, paying later, thinking it’s doing them a favour.” she declared. “Really, it’s just more debt and more creditors, on top of what they’re already dealing with.”

Sue Anderson, media manager at StepChange, a debt relief charity, told CNN Business the results were “worrying but not surprising”.

“Customers often don’t realize they are taking out credit at all, because the (BNPL) system is designed to give individuals minimal opportunities to stop and think about the deal they are entering into” , she said.

Anderson said StepChange’s own research suggests there is a “significant crossover” between BNPL use and people in financial difficulty.

Buy now, pay later Users in the UK are borrowing to pay their debts

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