A new report shows that an increasing number of Britons have used buy now, pay later during the pandemic, as people have turned to online shopping during successive lockdowns.
A third of adults now use a buy now, pay later product, according to consumer group, Which? And two out of five of those did so in the past year.
The BNPL segment allows shoppers to pay for goods in interest-free installments or after purchasing an item, often using informal credit agreements.
which? The report included a comprehensive and in-depth identification of typical users of buy now, pay later providers such as Klarna, Clearpay and Laybuy.
The value of spending through these payment methods more than tripled between January and December last year.
There are fears that people are being offered a false sense of security about their financial situation due to the lax affordability and credit checks carried out by BNPL companies.
More than a quarter of those who have used a BNPL credit in the past 12 months doubt they will be able to cover unexpected expenses of around £500.
And while four out of five BNPL shoppers never miss a payment, shoppers who use smaller BNPL companies are more likely to be left behind, according to the research.
Almost a third of those who used a smaller BNPL provider missed a payment. Familiar names in the area include Klarna, Clearpay and Laybuy.
“BNPL has become a popular form of short-term credit and can be a cost-effective alternative to expensive overdrafts and credit cards if used sensibly,” said Andrew Hager, personal finance expert at Moneycomms.
“Like any form of credit, there will be people who fail to repay on time, not because they set out to do so, but because of a change in their personal circumstances.”
Which? It is estimated that a third of the adult population in the UK has used the buy now, pay later product.
Which? I also found that some people use BNPL to access credit during stressful and difficult times in their lives and may suffer severe consequences as a result.
People aged 39 and younger were more likely to report missing a BNPL payment, while three-quarters of those who missed a payment had experienced a difficult life event in the past 12 months.
Missing a credit or bill payment increases your odds of using a BNPL by 38 percent, while experiencing a major life event — such as getting married, having a baby, moving home, or being laid off — increases your odds by 35 percent.
It was also found that those with dependent children are 71 percent more likely to use a BNPL product.
Which? It found that the BNPL was not limited to younger age groups or those with lower incomes.
Missing a credit or bill payment or experiencing a major life event increases the odds of using Buy Now, Pay Later by about a third.
Those with household incomes between £10,000 and £50,000 were 50 per cent more likely to use a BNPL product than those with incomes of less than £10,000.
“Our research challenges the buy-now, pay-later stereotype as a product used by millennials and millennials and shows that it’s also popular with wealthier consumers, people with families, and those facing difficult times financially,” said Rocio Concha, director of policy and advocacy at Which?.
“Our findings raise concerns that buy-now-pay-later users may not be fully aware of the financial commitment they are involved in – putting them at risk of accumulating significant debt.”
What are the risks of BNPL?
Regular BNPL shoppers are at risk of spending beyond their means, which can lead to financial difficulties in the future if not managed effectively.
“If you use it frequently, there is a risk that you will lose the total amount you borrowed across a range of retailers, and the accumulated monthly repayments may put your money under pressure,” Hager said.
Ask yourself if you really need the product before clicking the buy now button? Leave it a day – sleep on it, and if the next day you are still sure, go ahead, but try to avoid impulsive purchases without checking that you can afford it.
“Also ask if you are 100 percent sure that you will be able to repay without incurring any missed payment fees?”
What needs to be done to better protect people?
Experts believe BNPL companies should be more transparent about the risks of using their services and provide preliminary information about late fees and what people can expect if they miss a payment.
“All fees should be made clear before a person signs up for a BNPL with the caveat that a missed payment can have serious consequences for your long-term finances and ability to get credit,” Hager said.
There should also be strict affordability checks and all borrowing applications should be subject to a credit search – this would highlight those who strike several BNPL deals and potentially face financial stress in the future.
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