Fears of spiralling debt for consumers after Buy Now Pay Later surge
Fears of spiralling debt for consumers after Buy Now Pay Later purchases surged by £1bn over festive period
- Shoppers facing new year debts after using Buy Now Pay Later schemes
- Festive spending using the scheme put at £3.3billion by experts Credit Karma
- Research suggests users don’t understand consequences of missing repayment
- Nearly half struggling to manage their debt have seen their credit rating drop
Shoppers face a new year debt crisis after the use of Buy Now Pay Later schemes surged by £1billion at Christmas.
As a result, total festive spending using the method, which lets consumers pay for products in instalments, has been put at £3.3billion by financial planning experts Credit Karma.
It said this is 43 per cent higher than last year with more than half of shoppers viewing it as ‘easy credit’.
Research by consumer group Which? suggests many users do not understand the consequences of missing repayments.
These can include penalty fees, a black mark on their credit record and being referred to a debt collector.
A growing number of retailers now offer sales through the scheme, including Harrods and Guess.
According to Credit Karma’s study, nearly half of those struggling to manage their Buy Now Pay Later debt have seen their credit rating drop.
Ziad El Baba, from the company, said: ‘[The scheme] becomes problematic when consumers borrow more than they’re able to comfortably pay back.’
Research by consumer group Which? suggests many users do not understand the consequences of missing repayments under Buy Now Pay Later schemes
The government is consulting on regulation, however Which? says delays in the process is leaving consumers vulnerable.
It is calling for stronger safeguards to protect consumers, including steps in the checkout process to ensure people understand they are borrowing money and warnings about the risks of using the schemes.
It says key information, such as payment terms, late fees and the potential consequences of missed payments, should be communicated at the point of transaction to help consumers make informed choices.
And it argues that firms should introduce affordability assessments ahead of regulation being introduced.
Which? Director of Policy and Advocacy, Rocio Concha (correct), said: ‘BNPL schemes can offer speed and convenience at the checkout, but our research shows that many users do not realise they are taking on debt or consider the prospect of missing payments.
‘That is why there must be stronger safeguards to protect consumers and warn about the risks of using the schemes.
‘There must also be no further delay to plans for BNPL regulation, which should include much greater marketing transparency, information about the risks of missed payments and credit checks before consumers are cleared to use BNPL providers.’
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