Four times as many customers have Buy Now Pay Later debts

We’ve seen the number of customers seeking debt advice who have outstanding Buy Now Pay Later (BNPL) loans amongst their debts increase fourfold since the start of the pandemic. About 1 in 14 customers now have at least one BNPL loan.

The overall trend has been upwards – and there were peaks in customers with BNPL debts seeking debt advice after Christmas, and over the summer holiday.

What’s more, since March this year we’ve seen:

• a 49% increase in the number of customers with BNPL debts included in their debt solutions.
• a 15% rise in the average BNPL debt value per customer – from an average of £342 in March 21 to £392 in November 21. Some customers have up to 14 BNPL loans included in their debt solution.
• differences in the way men and women use BNPL: male BNPL borrowers tend to owe more than women (£462 compared with £324) and male borrowers are slightly older (36.5 compared with 35).

To find out more about customers’ experience with this type of borrowing, earlier this month we surveyed 600 of our debt solution customers who had had BNPL debt included on their solution.

Here’s what we found

• Shopping online is still overwhelmingly the main way our customers had accessed BNPL: 96% borrowed when at the checkout on an online retailer.
• 60% of BNPL customers said they’d purchased clothing with the loan; 47% home furnishings; 30% entertainment and technology; and 7% cosmetics and skincare (customers could choose more than one option).
• 13% said that they didn’t realise they were borrowing money. 60% said that they had realised they were taking credit, but that ‘it didn’t really feel like borrowing money’.

“You never realise if you don’t have the money then, that you probably won’t have it when the payment is due.”

• 73% of BNPL customers say that the lender did not take into account their ability to afford the repayments.

“There should be credit checks when taking BNPL.”

• We asked customers whether BNPL debts had contributed to their decision to take debt advice. 23% said that their BNPL debts were a big factor; 50% said they were a contributory factor; 27% said they weren’t a huge part of their decision.
• 74% of customers now regret using BNPL credit.

“It becomes addictive as things you cannot afford become ‘affordable’ until you suddenly have multiple small amounts going out regularly which put strain on your finances, it’s really bad”

“I think my BNPL was over 6 months. A lot can change in 6 months. Maybe it’s too long of a time scale.”

“I think it’s good for a short term, ie the ones where you make 3 regular payments only. But a rolling credit account just allowed to me to get more items that weren’t a necessity in the end.”

Getting the balance right

Deborah Ware, chief operating officer of Financial Wellness Group commented:

“Whilst lockdown helped to drive a surge in Buy Now Pay Later use, we are now seeing the impact of that with a fourfold increase in the number of people seeking debt advice who have used BNPL loans.

“BNPL can be a flexible and cheap form of credit – and certainly has a role to play. However, we remain concerned that BNPL lenders don’t do enough to check whether customers can afford the expected repayments. And because BNPL lenders don’t always run a hard credit check, they aren’t able to see what other BNPL credit the customer has been applying for, which can contribute to customers having multiple outstanding BNPL debts.

“We’ve raised the credit search issue with major BNPL providers, and we know that they are in discussion with the Credit Reference Agencies (CRA). The CRA’s monthly update cycle, and the way that each credit search reduces somebody’s credit-worthiness, causes issues for BNPL lenders – this needs to be addressed as part of the FCA’s credit information market study.

“It is vital that appropriate affordability checks are in place, and that customers are fully aware of the terms and conditions of the loan that they are taking. Very often these products are targeted at younger consumers at the point of purchase, with little time to really consider the pros and cons of ‘paying later’.

“In many cases BNPL lenders are paid by the retailer, and their incentive is to increase customers’ spend. As the BNPL sector moves towards regulation, getting the balance right between retailers increasing sales and responsible lending will be vital.”