Shoppers pile up £3.4bn Christmas debt, a ticking time bomb

British shoppers risk starting the New Year with a debt time bomb after spending a record £3.4bn using buy now, pay later (BNPL) credit over the festive period.

New figures show that this year more consumers than ever have turned to the unregulated form of credit to finance Christmas.

Despite Labour’s promise to reform the sector, new rules to protect buyers will not be introduced until at least 2026.

Experts say the delay will leave consumers at risk of falling into unaffordable debt for another year.

BNPL is a form of credit that allows buyers to defer payments or pay for products in installments. Critics say it can trap users in a debt spiral and claim information is not clear enough for customers and affordability checks are only superficial.

Providers also charge fees or interest for late payments.

Platforms have welcomed the Government’s commitment to new rules that would end years of uncertainty after regulation plans were first unveiled in 2021.

BNPL giants such as Swedish firm Klarna, which is still planning a long-awaited US IPO, and Clear Pay dominate the market in the UK.

Some banks, such as Monzo, and retailers, including Mike Ashley’s Frasers Group, offer their own BNPL services to customers. But despite the popularity of BNPL in the UK, another big player, Laybuy, fell into administration this year as customers tightened their belts.

The amount spent through BNPL in November and December is expected to have increased 8.3 percent year-on-year, according to Adobe forecasts.

And separate figures have shown that one in 12 UK adults – or 4 million people – will be reliant on credit over the Christmas period. About 38 percent of them will use BNPL, representing more than 1.5 million buyers.

This is an increase of two percentage points compared to 2023, when 36 per cent or 1.4 million borrowers used BNPL products over the festive period, according to debt charity StepChange.

And women are especially at risk: 42 percent of female borrowers rely on loans, compared to 32 percent of men.

The splurge comes despite retail sales over the festive period falling. ‘Super Saturday’, the last Saturday before Christmas Day, saw a disappointing 0.9 percent increase in shoppers compared to 2023.

Boxing Day, when people traditionally flock to stores in search of post-Christmas bargains, also failed to provide a much-needed boost to struggling retailers.

Business activity on the morning of Dec. 26 was down nearly 9 percent compared to last year, with high streets seeing the steepest declines, according to MRI Software.

Analysts noted that rather than queuing outside stores to hunt for bargains, many people were using Boxing Day to spend time with their families, go out to dinner or attend sports matches.

Simon Trevethick of StepChange said: ‘BNPL services have grown in popularity in recent years, but of course at this time of year using this type of interest-free credit may be even more popular as people see their budgets stretched by the Christmas expenses.

“While BNPL can be a useful way to spread the cost of gifts, food and other festive items, consumers may risk falling into hardship if repayments become unaffordable in the New Year.”

When regulation is introduced, BNPL companies will be regulated by the Financial Conduct Authority.

That will mean suppliers will have to check that buyers can afford the payments before offering a loan.