Buy now pay later borrowing at all-time high
The credit reference agency analysed data from more than 8,700 current accounts and 2,000 consumer interviews to compile a picture of BNPL usage with lenders such as Klarna, PayPal and Clearpay in the UK.
BNPL providers allow customers to spread the cost of retail purchases over a number of weeks or months, often with no interest or fees.
BNPL’s popularity has jumped in recent months, recently inviting scrutiny from the Treasury and FCA, but Equifax’s data shows that the total sum borrowed by each individual has risen far less dramatically.
The average user made £125.32 of BNPL repayments last month, just £5 higher than the £120.35 in December 2020, broadly in line with inflation. The average number of monthly transactions also grew slightly, fluctuating about 5.02 in 2021, and hitting 5.76 last month.
Jayadeep Nair, chief product and marketing officer at Equifax UK, said: “BNPL is not a new concept, it’s been part of the UK’s credit industry for decades, but it has taken on new forms in recent years that has sent its popularity soaring. For switched on shoppers that want to smooth out their spending over the festive period, it can be an incredibly useful budgeting tool, and may soon even help those with thin credit files to build up a healthy credit score.
“However, as useful as BNPL can be, it’s important that shoppers don’t see it as a way to overstretch themselves in the coming weeks. Prices are rising, interest rates are creeping up, and unless wages keep pace, most borrowers will see their finances squeezed over the coming months. The message to shoppers considering using BNPL at the checkout is clear: are you sure you can make the repayments on time? And could you have afforded this purchase without BNPL?”
Black Friday and Cyber Monday
Equifax’s research found that more than one in 10 shoppers expect to use BNPL over the festive period. One in 10 (10%) expect to use BNPL for at least one of their purchases this weekend, more than double the 5% that ended up doing so last year.
Those most likely to use BNPL this Black Friday and Cyber Monday weekend include young people aged 18 to 34 (23%), and people earning more than £50,000 a year (23%). One in seven (14%) BNPL users say it will help them make the most of the sales when one month’s salary won’t stretch far enough, while one in four (27%) like having the ability to splash out now, and only pay for items they decide to keep.
Christmas is also a major driver of BNPL use, with 9% of Xmas shoppers last year using BNPL to spread out the cost of presents. The number expecting to do so next month has risen to 11% and may end up being higher.
Once again it is 18 to 34-year-olds that are expected to lead the charge, a quarter (25%) of them plan to use BNPL this Christmas, compared to 10% of 35 to 54-year-olds and just 2% of over 55s.
One in five (22%) people planning to use BNPL say they feel pressure to buy presents for family and friends, and more than a quarter (27%) say they would struggle to afford Christmas without its help.