Home Money Nearly half of young people don’t realise buy now, pay later can get them in debt

Nearly half of young people don’t realise buy now, pay later can get them in debt

by Elijah
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Borrowing: Buy now, pay later products allow users to split payments into installments but may incur debt
  • More than a third of young people use BNPL products at least once a month
  • They are the second most common form of borrowing among 18-34 year olds
  • But many don’t realize that paying this way can put them in debt

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Nearly half of people aged 18 to 34 are unaware that lenders can charge buy now and pay later fees for missed payments, research shows.

About 46 percent of young people said they did not know they could get into debt by using BNPL products, compared to an average of 35 percent.

Lender Creditspring’s research also showed that BNPL products are now the second most common form of borrowing among the younger generation.

Borrowing: Buy now, pay later products allow users to split payments into installments but may incur debt

Borrowing: Buy now, pay later products allow users to split payments into installments but may incur debt

While credit cards remain the most popular form of borrowing for young adults, with 19 percent taking out these products, 15 percent of 18 to 34-year-olds said they had taken out BNPL products for the first time since August last year.

This compares with 13 percent of 35 to 54-year-olds, while among those over 55, only four percent had started using these products in the past six months.

Young people are by far the biggest users of BNPL services, with 36 percent of 18 to 34 year olds already using these products at least once a month, compared to just 20 percent of 35 to 54 year olds.

Neil Kadagathur, CEO and co-founder of Creditspring, said: ‘The UK is sitting on a ticking BNPL time bomb: millions of young people are unknowingly putting their financial future at risk by piling up BNPL debt.

‘There is a huge knowledge gap when it comes to BNPL. This is caused by lenders who continue to offer a lack of transparency, confusing repayment terms and hidden fees. BNPL lenders must take responsibility for addressing the misconceptions that still exist about the risks of using these products,” Kadagathur said.

Buy now, pay later products allow users to take out a loan for a specific purchase, which is then repaid in installments. These products often offer an interest-free loan for an initial period.

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However, these products are unregulated and providers generally do not carry out credit checks on users, meaning those who are already financially vulnerable could find themselves in even more debt due to the high interest charged to them if they do not pay the fees. money back on time.

The lack of regulation of these products also means that users cannot report their concerns to the Financial Ombudsman, something that as many as 88 percent of young people do not realise.

Meanwhile, a fifth of young people do not know that BNPL is completely unregulated.

With the onset of the Covid pandemic and the cost of living crisis, BNPL has become an increasingly popular option, especially among younger generations, with products such as Klarna and Clearpay leading the sector.

However, in many cases, those who use these products are unaware that they are borrowing money in the same way they would with a credit card.

Only 37 percent of young people say they can pay off their BNPL debts without difficulty, compared to 60 percent of those aged 35 to 54.

Debt support organization StepChange has warned that people with BNPL debts are three times more likely to have problem debt compared to the average British adult.

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StepChange head of communications Simon Trevethick said: ‘Our research reveals a worrying crossover between BNPL use and financial distress, but also that BNPL use is becoming increasingly common.

‘With the cost of living putting pressure on household budgets, there are concerns that people are relying on credits such as BNPL to make ends meet, which poses greater risk as it is not regulated in the same way as other forms of consumer credit.

‘With BNPL remaining unregulated, there is a lack of consistency across the sector, meaning affordability controls can be patchy, as can consumer understanding.

‘Younger people who may have less financial experience may be more vulnerable to falling into problematic debt after using BNPL – especially as it is not always clear at the checkout that BNPL is a form of borrowing.’

Kadagathur added: “Regulation of BNPL is absolutely essential and cannot come soon enough.

“Plans to get the BNPL market back on track have been delayed for far too long, causing more confusion and ultimately punishing borrowers. The regulator must implement this much-needed legislation as a priority.”

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