Consumer finance

Payday loans used to cover buy now, pay later expenses

Buy now, pay later users are borrowing money to cover expenses, with some turning to payday loans or guarantors, a charity reveals.

More than two in five Buy Now, Pay Later (BNPL) customers have had to borrow money to make repayments, research by Citizens Advice has found.

BNPL programs are a form of credit, giving buyers the ability to buy something now and pay for it later. But because of the way some plans work, they can quickly become expensive if the debt isn’t cleared, with interest and other fees added.

The charity found that 52% said they used money from their checking account, 26% used a credit card and 23% used savings.

However, 9% used their bank overdraft, 7% borrowed from friends and family, 6% used a personal loan while 5% admitted to using a personal loan and 3% turned to a guarantor loan .

Young buyers were the most likely to borrow to repay purchases from BNPL, as 51% of 18-34 year olds borrowed money to repay BNPL debt, compared to 39% of 35-54 year olds and 24% of over 55s.

Citizens Advice interviewed a nationally representative survey of 2,288 people in the UK who had used BNPL in the past 12 months. He said the findings come as the market “continues to grow at breakneck speed” but the industry remains unregulated.

As the government announced its intention to regulate BNPL products, Citizens Advice is calling for market-wide accessibility checks and clearer information at checkouts, as one in 10 BNPL shoppers did not fully understand how refunds would be put in place.

“Counting on one debt to pay off another”

Millie Harris, debt counselor at Citizens Advice in East Devon, said: ‘Most of the people I speak to who use BNPL live off overdrafts and credit cards so use them for repayments. It’s just relying on one debt to pay off another debt.

“It’s heartbreaking to see parents who can’t afford to buy clothes or shoes for their children turn to BNPL, thinking it’s doing them a favor. In reality, it’s just more debt and more creditors, on top of what they already face.

“What scares me the most is how easily people can slip into using BNPL. They come to use it much faster than other forms of credit. It’s just a few clicks to checkout. Too often that means people don’t realize how bad it is; it’s a credit and there are consequences if they don’t pay it back.

Clare Moriarty, managing director of Citizens Advice, added: “Buyers are piling on borrowed money and pushed themselves into increasingly desperate situations from which it may seem impossible to escape.

“The BNPL’s debt spiral into credit cards, loans and even payday lenders shows that it is not a risk-free alternative. BNPL is part of the credit industry and urgently needs to be regulated as such.