United Kingdom

Increasing number of Britons turning to Buy now, pay later schemes

An increasing number of Britons used buy now, pay later schemes during the pandemic as people turned to online shopping during successive lockdowns, a new report shows.

One third of adults have now used a buy now, pay later product, according to the consumer group, Which? and two in five of those have done so in the last year.

The BNPL sector allows shoppers to pay for goods in interest-free instalments or after purchasing an item, often using informal credit agreements.

The Which? report included extensive in-depth profiling of typical users of buy now, pay later providers such as Klarna, Clearpay and Laybuy.

The value of spending made through these payment methods, more than tripled between January and December last year.

There are concerns people are being offered a false sense of security about their financial situation due to lax affordability and credit checks conducted by BNPL firms.

More than a quarter of those who have used BNPL credit in the last 12 months doubt they would be able to cover an unexpected expense of about £500.

And while four in five BNPL shoppers have never missed a repayment, shoppers using smaller BNPL firms are more likely to have fallen behind, according to the research.

Almost a third of those who have used a smaller BNPL provider have missed a payment. Familiar names in the area include Klana, Clearpay and Laybuy.

'BNPL has become a popular form of short term credit and can be a cost effective alternative to expensive overdraft and credit cards if used sensibly,' said Andrew Hagger personal finance expert at Moneycomms.

'Like any form of credit there will be people who fail to repay on time, not because they deliberately set out to do so, but due to a change in their personal circumstances.' 

Which? estimates that a third of the UK adult population have used a buy now, pay later product.

Which? also found that some people are using BNPL to access credit at stressful and challenging times in their lives and may be experiencing harmful consequences as a result.

Those aged 39 or younger were more likely to report having missed a BNPL repayment, while three quarters of those who had missed a payment had experienced a challenging life event in the last 12 months.

Missing a credit repayment or bill increases the odds of using BNPL by 38 per cent, whilst experiencing a major life event - such as getting married, having a baby, moving home or being made redundant - increases the odds by 35 per cent.

It was also shown that those with dependent children are 71 per cent more likely to have used a BNPL product. 

Which? found that BNPL was not limited to younger age groups or those with lower incomes.

Missing a credit repayment or bill or experiencing a major life event increases the odds of using buy now, pay later by around a third.

Those with household income of between £10,000 and £50,000 were 50 per cent more likely to use a BNPL product than those with a household income of less than £10,000.

'Our research challenges the stereotype of buy now, pay later as a product used by Gen-Z and millennials and shows it is also popular with more affluent consumers, people with families and those who are facing financially challenging times,' said Rocio Concha, director of policy and advocacy at Which?.

'Our findings raise concerns that buy now, pay later users might not be fully aware of the financial commitment they are signing up to - putting them at risk of accumulating a big debt.'

What are the risks of BNPL?

Regular BNPL shoppers are at risk of spending beyond their means, which could result in financial difficulties in the future if not managed effectively.

'If you use it frequently, there's the danger that you'll lose track of the total amount you've borrowed across a range of retailers and the cumulative monthly repayments could put your finances under pressure,' said Hagger.

'Ask yourself if you really need the product before clicking the buy now button? Leave it a day - sleep on it and if you're still sure the next day then go ahead, but try to avoid impulse purchases without checking you can afford it.

'Also question whether you are 100 per cent sure you will be able to repay without incurring any missed payment fees?'

What needs to be done to better protect people?

Experts believe BNPL firms should be more transparent about the risks of using their services and provide upfront information about late fees and what people can expect if they miss a payment.

'All fees should be made very clear before the person signs up for their BNPL together with a warning of how a missed payment could have serious consequences for your longer term finances and the ability to obtain credit,' said Hagger.

'There should also be rigorous affordability checks and all borrowing requests should be subject to a credit search - this would flag up those who are taking out multiple BNPL deals and possibly facing financial pressure down the line.'

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