Financial Wellness Group sees a fourfold increase in customers seeking debt advice who have Buy Now Pay Later debts

New figures from Financial Wellness Group show that the number of customers seeking debt advice who have outstanding Buy Now Pay Later (BNPL) loans amongst their debts has increased fourfold since the start of the pandemic. About 1 in 14 customers now do so.

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

In the past 8 months (March to November 2021), the number of customers with BNPL debts on a debt solution provided by Financial Wellness Group has increased by 49%. Over the same period, the average value of those BNPL debts has risen by 15% – from £341.70 in March, to £391.75 now. Some customers have up to 14 outstanding BNPL loans although, typically, the average value of customers’ BNPL debts is a relatively small part of their overall indebtedness.

The split between male and female customers with BNPL borrowing is 50:50, but male BNPL borrowers tend to owe more than women (£462 compared with £324) and male borrowers are slightly older (36.5 compared with 35).

Financial Wellness Group conducted a survey of 600 of its customers with BNPL debts included in their debt solution, to understand more about their experience with this type of borrowing.

Shopping online is still overwhelmingly the main way customers had accessed BNPL credit: 96% borrowed when at the checkout of an online retailer. The most commonly purchased items with BNPL credit were clothing (60%), with 47% saying they’d borrowed to buy home furnishings, 30% entertainment and technology; and 7% cosmetics and skincare (customers could select more than one category).

Worryingly, 1 in 8 customers (13%) said that they didn’t realise they were borrowing money when they used a BNPL product. A further 60% said that they knew they were taking credit, but that ‘it didn’t really feel like borrowing money’.

Equally concerningly three quarters (73%) of customers felt that the BNPL lender didn’t take into account their ability to afford the repayments.

Around a quarter (23%) of customers said that their BNPL debts were a big factor in their decision to take debt advice, and half said they were a contributory factor, with 27% saying they weren’t a huge part of their decision.

Perhaps not surprisingly, 74% of customers now regret using BNPL credit.

Deborah Ware, chief operating officer of Financial Wellness Group commented: “Whilst lockdown helped to drive a growth 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 – when managed appropriately. 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 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 and 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’.”

“We’d urge consumers not to borrow more than they can easily afford to repay when spreading the cost of their purchases via Buy Now Pay Later and to check what interest and charges they could be liable for if they can’t afford the repayment.”

“If you are struggling to make your repayments the advice is to seek expert debt help sooner rather than later.“