Ignorance ‘at heart of’ BNPL explosion, warns loan provider, amid fears cost-splitting deals will becoming the UK’s next ‘credit trap’ scandal
The rapid growth in the use of Buy Now Pay Later (BNPL) services risks becoming the UK’s next ‘credit trap’ scandal, a loan provider has warned.
A report from Creditspring said a lack of education and awareness of the potential consequences of high-cost borrowing meant ‘poorly financially informed customers’ were increasingly relying on BNPL as a ‘crutch’ ahead of payday.
BNPL allows customers to split the cost of purchases into instalments, often with no interest or charges unless they fail to pay back on time.
Spending trap: A report from Creditspring said a lack of education meant customers’ were increasingly relying on BNPL as a ‘crutch’ ahead of payday
It is popular with younger shoppers and in sectors such as fast fashion.
But Creditspring joined charities and politicians sounding the alarm over the unregulated industry, with its report noting that a third of people did not know that using BNPL could put them in debt.
The report noted that 13 per cent of those surveyed used BNPL ‘because their friends do’, a figure that rose to 23 per cent among the under-25s.
‘Unawareness of the cost and consequences – combined with peer group encouragement and ease of access – means that BNPL usage is likely to increase,’ the report said.
Concerns about accessibility were echoed by Ayelet Fishbach at the Chicago Booth School of Business, who said it was ‘extremely difficult for many people to resist the temptation of BNPL’.
She added that BNPL ‘fundamentally takes advantage’ of a human’s ‘hardwired impatience’ and consumers needed to be aware of how they can be exploited by these products.
The report said that 24 per cent of people said they had struggled to pay back BNPL loans, up from 15 per cent last year, with 17 per cent missing at least one payment.
Creditspring said users were also risking their long-term ability to borrow if their credit score was affected.
It also warned the lack of regulation meant ill-informed customers could sign up for multiple BNPL services at once, increasing the risk that they will default on loans.
Creditspring called on lenders to ‘ensure borrowers fully understand the risks.’
It proposed removing ‘confusing’ terminology to make the true cost of borrowing clear.
‘The Government should provide urgent help by bringing regulation plans forward,’ the report added.