Nearly a third of buyers who use credit to buy now and pay later say loan repayments have become “unmanageable,” with the cost-of-living crisis pushing them into a debt spiral. a new investigation.
Consumers spend more through the controversial form of credit, with shoppers using BNPL now paying an average of 4.8 purchases, nearly double the 2.6 purchases in February, according to research. The average outstanding balance of the BNPL user is currently £ 254.
Barclays Bank and the debt charity StepChange said this was “worrying” because 30% of Britons have used BNPL to buy assets, and of these, almost a third (31%) said loans had led to a problem debt.
The research also found that for retailers offering BNPL, the loan form is expected to account for nearly a quarter of their sales by the end of this year.
BNPL allows buyers to stagger payments on items such as clothing and furniture without interest or charges, unless they pay on time, at which point some companies charge late fees. The cost is usually divided into weekly, fortnightly, or monthly installments. Lenders usually make money through commissions from retailers.
The new form of credit has seen explosive growth during the pandemic. There have been reports that it has slowed as people cut back on non-essential spending, but Richard Lane, StepChange’s director of foreign affairs, said: “There is growing evidence that BNPL is not only used to buy discretionary items such as fashion, but also the essentials of life, such as groceries. “
The multimillion-dollar sector, which in the UK is dominated by companies such as Klarna, Clearpay and Laybuy, will be regulated by the Financial Conduct Authority. However, it has been suggested that the new rules may not come into force until 2024, prompting activists such as Martin Lewis to express frustration with the slow pace of progress.
Sign up for the Daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk
Research indicates that rising cost of living is having a direct impact on the popularity of BNPL, with more than a third (36%) of consumers saying it had become more attractive since inflation and energy costs began to rise.
Four hundred retailers were surveyed for research, and those who offered BNPL estimated that it would account for 22.1% of sales by the end of 2022, compared to the current 18.7%.