Interactive Investor

Buy now, pay later can be a banana skin for those in debt

8th June 2022 09:54

Myron Jobson from interactive investor

interactive investor comments on Citizens Advice BNPL research.

  • Citizens Advice found 51% of 18-34 year olds borrowed money to pay off buy now pay later (BNPL) debt, compared to 39% of 35-54 year olds and 24% of over-55s.
  • The types of borrowing included overdrafts, borrowing from friends and family, loans and payday loans. The most popular was credit cards (26%).

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Taking out a loan to pay off buy now pay later purchases could lead to a perpetual cycle of debt that is difficult to escape. It also completely mitigates the main draw of BNPL arrangements in that they allow consumers to delay or split the cost of purchase without paying interest. Interest applied to loans means the debt would swell the longer it takes to pay off.

“BNPL schemes can be a particular banana skin for those embroiled in debt. Many BNPL services don’t subject customers to a 'hard' credit check that can leave a footprint on their credit report. As such, a key issue with BNPL is it may attract people who are already in the red and may be struggling to pay existing bills.

“The escalating cost of living crisis risks people turning to BNPL schemes to help tide them over. You can now buy essential groceries through some BNPL services, which is particularly disconcerting. It is never a good idea to borrow to pay for essentials - it is a shortcut to unmanageable debt.

“Regulation of the BNPL industry can’t come soon enough.”

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