Payday loans used to buy now and pay later

Buy now, pay later Users are borrowing money to meet their expenses, with some turning to payday or guarantee loans, a charity reveals.

More than two in five buy-now-pay-later (BNPL) customers have had to borrow money to make repayments, a Citizens Advice study found.

BNPL programs are a form of credit that give buyers the opportunity to buy something now and pay for it in the future. However, due to the way some systems work, they can quickly become expensive if the debt is not paid off, adding interest and other fees.

The charity found that 52% said they used money from their checking account, 26% used a credit card, and 23% said they 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 payday loan and 3% used a guarantee loan.

Younger shoppers were the most likely to borrow to pay off BNPL purchases, as 51% of 18-34 year olds borrowed to pay off BNPL debt, compared to 39% of 35-54 year olds and 24% of those over 55 -year-olds.

Citizens Advice conducted a nationally representative survey of 2,288 people in the UK who had used BNPL in the past 12 months. These results come as the market “continues its meteoric growth” but the sector remains unregulated.

While the government has announced its intention to regulate BNPL products, Citizens Advice is calling for market-wide affordability reviews and clearer information at tills, as one in 10 BNPL buyers did not fully understand how the paybacks would be made.

“Building on one debt to pay another debt”

Millie Harris, debt adviser at Citizens Advice in East Devon, said: “Most of the people I speak to who use BNPL are living off bank overdrafts and credit cards and so use those to make repayments. It only relies on one debt to pay another debt.

“It is heartbreaking to see parents who cannot afford their children’s clothes or shoes turn to BNPL thinking they are doing them a favour. In reality, it’s just more debt and more creditors on top of what’s already in store for them.

“What scares me the most is how easily people can slip into using BNPL. You rely on it much faster than other forms of credit. It’s just a few clicks at checkout. Too often that means people don’t realize how serious it is; that it is a loan and there will be consequences if they don’t pay it back.”

Clare Moriarty, Managing Director of Citizens Advice, added: “Shoppers pile on credit and find themselves mired in increasingly desperate situations from which it seems impossible to escape.

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

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