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Buy now pay later users struggling to pay back debts

Emma Lunn
Written By:
Emma Lunn

A fifth of buy now pay later (BNPL) users are unable to pay back Christmas spending without taking on more debt, according to Compare the Market.

The price comparison site found that 20% of adults who used a BNPL scheme at Christmas will be unable to meet repayments without borrowing more money.

It found the average amount spent by BNPL users at Christmas was £211, slightly up from £201 in 2019.

BNPL schemes, such as Klarna and Laybuy, are becoming an increasingly common alternative method of financing purchases, especially when shopping online.

Compare the Market found that two thirds (36%) of BNPL users saw it as a way to spread the upfront cost of Christmas spending over a longer timeframe. But the study also found that BNPL services encouraged unnecessary spending, with almost a third (32%) of those questioned spending more than they usually would, and more than two-fifths (44%) buying more extravagant gifts.

Compare the Market found that a third (33%) of people using BNPL for Christmas spending did so because they couldn’t afford the purchase upfront at the time and wanted to delay the payment.

Nearly a quarter (23%) said BNPL better suited their financial needs than other forms of debt, such as a credit card. More than a quarter (26%) were offered a discount if they used a BNPL scheme.

James Padmore, head of money at Compare the Market, said: “With bubbles, shielding and tiers, Christmas was not what many of us had hoped it would be, but people still wanted to celebrate the festive season with gift giving.

“When used responsibly, BNPL schemes can be an effective and alternative way to spread out the payments of large purchases. It’s easy to see why it’s popular at a time like Christmas when people may be spending larger sums than usual. However, the ‘I’ll deal with it later’ attitude to using this type of financing may mean that some people are now really feeling the strain.

“Our findings show that this has unfortunately caught up with some customers who are now having to take on more debt to cover the cost of their Christmas spending.”

A Which? study found that partnerships with BNPL services are encouraging shoppers to shop at unknown or dodgy retailers, with many breaking rules on refunds and returns.