Buy Now Pay Later temptation triggering a New Year nightmare

THE festive shopping frenzy is in full swing and debt charities fear too many people will feel pressure to spend more than they can afford, ending up deep in the red in the New Year.

Buy Now Pay Later is the key worry as it is far too easy for people to access – often online it is the most prominent way to pay.

Already, charities such as StepChange and Christians Against Poverty say more than one in 10 of their clients with unmanageable debt have BNPL debts.

Many people are struggling with everyday finances, without the extra strain of Christmas.

Gareth McNab, director of external affairs at Christians Against Poverty, said: “Poverty in our communities is getting worse – it’s devastating the lives of millions of people across the UK.

“We are supporting increasing numbers of people who have had to borrow money just to pay for essentials, like food, bills and energy. Income is so low for many that any extra pressure, including Christmas, can leave them in a worse financial situation.”

Charities and consumer groups are calling for the government to regulate the BNPL market as currently there is little to protect people when they take out these loans. But it keeps dragging its feet and this continues to leave people at risk.

While BNPL can be a useful way to spread the cost of a larger item, it only works if used correctly on an odd purchase and not as a crutch to prop up finances. It is easily available and without proper affordability checks people can end up with BNPL debt upon BNPL debt and that’s when things can spiral out of control.

Research from the Financial Conduct Authority shows that over a quarter of UK adults have used BNPL at least once in the six months prior to January 2023.

Richard Lane, Director of External Affairs at StepChange says BNPL is often presented at the online checkout as a convenient way to pay, but it is not always clear it is a form of credit.

This means people aren’t always encouraged to pause and consider whether they’ll be in a position to meet the repayments in a month or two.

As many BNPL users tend to be younger, they don’t have as much experience using credit products. And there is nothing stopping someone from taking out a BNPL loan from several stores, meaning while one small purchase might seem like a small amount of debt, it can easily build up.

Richard said: “Buy Now, Pay Later services have grown in popularity over the last few years, and are now available on a huge range of retailers from clothing to takeaways and groceries.

“As it’s generally interest-free, it can be a useful form of credit, but as we know from helping people in problem debt, even interest-free credit can carry risks.

“The biggest issue with BNPL that we, and other charities, have been highlighting for years is its lack of regulation.

“Unlike other forms of credit, BNPL does not come under the regulatory control of the Financial Conduct Authority, meaning there are no consistent rules to protect consumers when it comes to affordability checks or marketing.

“Past research on BNPL and its users has shown there can often be a worrying crossover between use of BNPL and financial difficulty. We continue to urge the Government to follow through on its commitment to regulate BNPL services to protect consumers.

“As more people might be thinking about using BNPL to buy gifts and food, it’s important to always think ahead to whether those repayments will be affordable when the New Year arrives.”

Jane Tully, acting deputy chief executive at the Money Advice Trust, the charity that runs National Debtline, agrees that the Government needs to take action and regulate the BNPL market.

“The run up to the festive period can come with pressure to spend, and now is often a time when there are lots of deals.

“BNPL schemes can often be accessed more easily than other forms of credit. As high costs continue to have a severe impact on household finances, government proposals to bring products under regulation need to be implemented as soon as possible.”

Remember, Christmas is just one day and it’s not worth ending up in a debt nightmare for.

The biggest issue is lack of regulation so there’s no consistent rules