Two out of five Buy now, pay later Buyers borrow money to pay off debt

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Charity Citizens Advice recently said more than two in two Buy Now, Pay Later (BNPL) shoppers rely on credit cards or other forms of borrowing.

The figures show buyers are “borrowing more than one” and underscored the urgent need to regulate BNPL.

On Monday, Apple unveiled a BNPL feature for iPhones, which will first roll out in the US or around September and potentially arrive in the UK a few months later.

BNPL allows buyers to pay for goods without interest or fees – until they don’t pay back on time, at which point some companies charge late fees. Usually the costs are broken down into weekly, fortnightly or monthly installments.

The two largest BNPL firms operating in the UK are Klarna and Clearpay and other big players are Labeau and Zilch.

This form of credit has seen explosive growth during the coronavirus pandemic, particularly among the under-30s and those on a tight budget. However, the growth rate is believed to have slowed in recent months as the cost of living crisis has prompted people to cut non-essential spending.

A survey conducted for Citizen Advice in March included 2,288 people in the UK who had used the BNPL in the past 12 months.

More than two in five respondents (42%) say they use some form of lending to fund their repayments, with credit cards being by far the most popular option. Others included bank overdrafts, loans from friends and family, and personal and payday loans.

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Smaller shopkeepers were the most likely to borrow to pay for BNPL purchases. The charity found that 51% of people aged 18-34 borrowed money to pay off BNPL loans.

The government has said BNPL is to be regulated by the Financial Conduct Authority, although that is unlikely to happen by the end of this year or in 2023. Citizens want this rule to provide clear information on affordability checks and online checkout for all participating businesses.

Millie Harris, credit counselor at Citizen Advice East Devon, said using credit cards and other forms of lending to repay “relies on just one loan to pay off another”.

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