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Payday loans used to cover buy now, pay later spends

Paloma Kubiak
Written By:
Paloma Kubiak

Buy now, pay later users are borrowing money to cover their spends, with some turning to payday or guarantor loans, a charity reveals.

More than two in five buy now, pay later (BNPL) customers have had to borrow money to make repayments, Citizens Advice research revealed.

BNPL schemes are a form of credit, giving shoppers the opportunity to buy something now and pay for it in the future. But because of the way some schemes work, they can quickly become expensive if the debt isn’t cleared, with interest and other charges added.

The charity found that 52% said they had used money from their current account, 26% used a credit card and 23% used savings.

However, 9% used their bank overdraft, 7% borrowed from friends and family, 6% used a personal loan while 5% admitted to using a payday loan and 3% turned to a guarantor loan.

Younger shoppers were most likely to borrow to pay off BNPL purchases as 51% of 18-34 year olds borrowed money to pay off BNPL debt, compared to 39% of 35-54 year olds and 24% of over-55s.

Citizens Advice polled a nationally representative survey of 2,288 people in the UK who had used BNPL in the last 12 months. It said these findings come as the market “continues its meteoric growth” but the sector remains unregulated.

While the government has announced its intention to regulate BNPL products, Citizens Advice is calling for market-wide affordability checks and clearer information at checkouts as one in 10 BNPL shoppers didn’t fully understand how the repayments would be set up.

‘Relying on one debt to pay off another debt’

Millie Harris, a debt adviser at Citizens Advice in East Devon, said: “Most of the people I speak to who are using BNPL live off overdrafts and credit cards, so are using these for repayments. It’s just relying on one debt to pay off another debt.

“It’s heart-breaking to see parents who can’t afford their children’s clothes or shoes, turning to BNPL, thinking it’s doing them a favour. In reality it’s just more debt and more creditors, on top of what they’re already facing.

“What scares me most is how easily people can slip into using BNPL. They come to rely on it much more quickly than other forms of credit. It’s just a few clicks at a checkout. Too often that means people don’t realise how serious it is; that it is credit and there are consequences if they don’t repay.”

Clare Moriarty, chief executive of Citizens Advice, added: “Shoppers are piling borrowing on top of borrowing, and sinking into ever more desperate situations that can feel impossible to escape from.

“The spiral of debt from BNPL to credit cards, loans and even payday lenders shows it’s not a risk-free alternative. BNPL is part of the credit industry and must urgently be regulated as such.”