Debt fears for one in three buy now, pay later shoppers as it emerges more families are turning to lenders to cope
- Retailers have seen a surge in use of payment plan services Klarna or Clearpay
- The unregulated buy-now, pay-later sector has ballooned to be worth £billion
- And the average borrower is now paying off 4.8 purchases at once, up from 2.6
A third of buy now, pay later shoppers are in ‘unmanageable debt’ as more turn to the lenders to cope with cost of living rises.
Retailers have seen a surge in the use of services such as Klarna and Clearpay, which allow payments to be spread over weeks or months.
And the average borrower is now paying off 4.8 purchases at once, up from 2.6 in February, according to Barclays and debt charity StepChange, with some shoppers even using the deals to buy groceries.
Estimated to be worth £6billion, the unregulated buy-now, pay-later (BNPL) sector has ballooned over the past few years. More than 17million people are believed to use the lenders, which offer interest-free credit online and in stores. Critics fear BNPL encourages shoppers to spend more than they can afford.
Earlier this week ministers confirmed lenders will have to carry out affordability checks. But this may not happen until 2024, with campaigners accusing the Treasury of not moving fast enough.
A third of buy now, pay later shoppers are in ‘unmanageable debt’ as more turn to the lenders to cope with cost of living rises. Retailers have seen a surge in the use of services such as Klarna (pictured) and Clearpay, which allow payments to be spread over weeks or months
Barclays and StepChange want firms to do more to protect customers. Antony Stephen, of Barclays Partner Finance, said: ‘Retailers are a vital gatekeeper in the lending process and it is crucial they perform due diligence on BNPL products.
‘However tempting it may be to evaluate BNPL payments purely on their acceptance rates or merchant fees, they need to go further and look at how responsible the lending process is behind each transaction.’
A poll by the bank and charity found the average BNPL borrower had debts of £254 – 31 per cent said repayments were ‘unmanageable’.
Retailers offering BNPL told researchers it would fund nearly a quarter of all sales by the end of 2022. Nine in ten businesses also reported a surge in demand for the services since the start of the year.
Richard Lane from StepChange said: ‘There is evidence BNPL isn’t just being used to buy discretionary items, but also essentials like groceries. Just because it is short-term and interest-free doesn’t mean it isn’t a contributor to problem debt.’
A Treasury spokesman said it was committed to ensuring the regulation of BNPL was ‘proportionate and effective’.