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Stressed out borrowers turning to buy now pay later

Emma Lunn
Written By:
Emma Lunn

A report by Which? found that buy now pay later (BNPL) services are being used by people experiencing financial stress – not just fashion-conscious young people.

The consumer champion is calling for regulation of the BNPL sector after its rapid growth during the pandemic.

Marketing and media portrayals of BNPL firms have created a stereotype of the typical user – young women in their early 20s keeping up with the latest fashions by spreading the cost of their purchases, interest-free.

But Which? has carried out extensive in-depth profiling of typical users of BNPL providers such as Klarna, Clearpay and Laybuy, and claims this portrayal is not the whole truth.

Which? estimates that a third (33%) of the UK adult population have used a BNPL product. While older consumers are less likely to have used BNPL, it’s clear that these services are not just being used by young people to keep up with fashion trends.

Stressful times

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

Respondents 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 past 12 months.

Missing a credit repayment or bill or experiencing a major life event – such as getting married, having a baby, moving home or being made redundant – increases the odds of using BNPL by about a third.

Missing payments

BNPL usage has grown rapidly during the pandemic as consumers turned to online shopping during lockdowns. Two in five (42%) of survey respondents who had used BNPL have done so in the past year.

Despite using other forms of credit in the past 12 months, a quarter (26%) of respondents who have used BNPL credit in the past 12 months have a pessimistic view of being able to cover an unexpected expense of about £500 using credit. This compares with just a fifth (18%) of the general population.

Which? says this raises concerns about the rigour of BNPL firms’ affordability and credit checks and risks giving people a false sense of security about their financial situation if they are inappropriately cleared for BNPL.

While four-fifths (81%) of BNPL users had never missed a repayment, users of smaller BNPL firms were more likely to have fallen behind – with up to a third (31%) of those who had used a smaller BNPL provider missing a payment.

Regulation needed

The Which? report strengthens the case for greater regulation to ensure consumers are aware of the risks of BNPL providers – namely that they could fall into debt and if they do, firms may take action.

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

Mandating credit checks before a user is approved and ensuring that providers communicate with each other so that an individual is not able to miss payments with one firm and then take out an agreement with another company would also help prevent consumers from getting into financial difficulty.

Rocio Concha, Which? director of policy and advocacy, said: “Our research challenges the stereotype of BNPL 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.

“Our findings raise concerns that BNPL users might not be fully aware of the financial commitment they are signing up to – putting them at risk of accumulating a big debt.

“There should be no further delay to plans for regulation, which should include much greater marketing transparency, information about the risks of missed payments and credit checks before consumers are cleared to use BNPL providers.”