Almost a third of shoppers who use buy now, pay later credit say repayments on the loans have become “unmanageable”, with the cost of living crisis pushing them into a debt spiral, new research has found.
Consumers are spending more via the controversial form of credit, with shoppers who use BNPL now paying off an average of 4.8 purchases – almost double the 2.6 purchases in February, the research found. The average BNPL user’s outstanding balance currently stands at £254.
Barclays Bank and the debt charity StepChange said this was “concerning” because 30% of Britons have used BNPL to buy goods, and of these, almost a third (31%) saying the lending had got them into problem debt.
The research also found that for retailers that offer BNPL, the form of lending is expected to account for almost a quarter of their sales by the end of this year.
BNPL lets shoppers stagger payments for items such as clothes and furniture with no interest or charges – unless they fail to pay back on time, at which point some firms impose late fees. Typically, the cost is split into weekly, fortnightly or monthly instalments. Lenders typically make their money via commission from retailers.
The new form of credit has enjoyed explosive growth during the pandemic. There had been reports that it had slowed down as people cut back on non-essential spending, but Richard Lane, director of external affairs at StepChange, said: “There is rising evidence that BNPL isn’t just being used to buy discretionary items like fashion, but also life’s essentials, like groceries.”
The multibillion-pound sector – which in the UK is dominated by firms such as Klarna, Clearpay and Laybuy – is to be regulated by the Financial Conduct Authority. However, it has been suggested that the new rules may not take effect until 2024, prompting campaigners such as Martin Lewis to voice their frustration at the slow pace of progress.
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The research indicates that the rising cost of living is having a direct impact on the popularity of BNPL, with more than a third (36%) of consumers saying it had become more appealing since inflation and energy costs began to climb.
Four hundred retail industry decision-makers were surveyed for the research, and those that offered BNPL estimated that it would account for 22.1% of sales by the end of 2022, compared with 18.7% now.