Most UK BNPL users don’t think they can lead to debt

In a report produced by lender Creditspring, 31% of people were unaware that BNPL purchases could lead to debt – a number that increased to 51% in the 18-24 age group. 

This younger group present the most worrying findings, also being a demographic that is 29% more likely to use BNPL services.  While a significant 29% of respondents did not know that BNPL is a form of borrowing like a credit card, this rose to 39% in the 18-24 category. 50% of 18-24 year-olds did not know that BNPL providers can add extra costs or late fees if payments are missed – compared to 41% in the rest of the study.  

Neil Kadagathur, Co-Founder and CEO of Creditspring, comments, “Despite increasing usage, there is still a severe misunderstanding of how BNPL works. After around a year of rising costs, household finances have been stretched to breaking points – many are using BNPL as a crutch until payday without being fully aware of the risks of doing so. The onus has to be on lenders to ensure that borrowers understand the risks and support them before they rack up huge debt piles. 

 An alarming 46% of all people did not know that they could be referred to a debt collector for missing a BNPL payment. In practice, only 44% of people using BNPL were able to repay loans without issue, while 9% admitted it pushed them into debt. Only 23% BNPL customers feel in complete control of their spending when using these services.  

Kadagathur said, “If used correctly, BNPL offers more flexibility to UK shoppers - however, the issue is often in the way they are offered or promoted with little information around the risks of missed payments or multiple BNPL purchases until it’s too late.

Vulnerable users present a particular concern for Creditspring (those whose future or current financial circumstances are unclear) as they could be more likely to miss payments and be disproportionally affected by BNPL late fees.  

BNPL products are currently unregulated, and with the FCA guidance still unpublished there is no clear indicated of if or when they will be subject to legislation. In the meantime, Creditspring is urging lenders to protect borrowers and lend responsibly, especially with Consumer Duty guidelines coming into force. 

Kadagathur added, “Regulation of this sector can’t come soon enough yet we’re unlikely to see it this year, meaning households will be at risk of BNPL debt throughout the expensive summer holidays and into – what is set to be – another challenging Autumn. Borrowers urgently need lenders to improve their communications, so people understand what they are signing up to and the risks inherent with using credit products such as BNPL.”