81% of UK still unaware ‘buy now, pay later’ is unregulated – millions at risk of falling into debt as living cost crisis bites

81% of UK adults are unaware that buy now, pay later (BNPL) schemes are unregulated, placing them at major risk of falling into debt, according to new research from subscription loan provider Creditspring.

Around half (47%) of UK adults don’t know that a person could be referred to a debt collector if they miss a BNPL payment – 43% also don’t know that BNPL providers can add a late payment fee in this instance.

A third of people (32%) are unaware that BNPL is a form of borrowing and, as such, this comes with risks. Even more concerningly, one in seven (14%) UK adults believe it is impossible to get into debt from using BNPL, and this rises to 26% among 18–34-year-olds. Since January 2021, more people have taken out BNPL than a mortgage, car finance or loan from a mainstream lender. Given what an enormously popular form of credit it is, especially among young people – one in five (18%) 18–34-year-olds have used BNPL since January 2021 – these major borrowing misconceptions mean millions of UK borrowers are at risk of hurting their credit reports and potentially falling into a debt spiral.

The UK’s cost of living crisis is gathering pace as inflation sits at 6.2%, the highest rate in 30 years, and is forecast by many to hit 8% in the next few months. The Resolution Foundation has estimated that this will see the real value of incomes decline by 4%, making each household £1,000 poorer – the biggest annual decline since 1975. April will also see the introduction of the proposed 1.25% rise in National Insurance increase pressure on household budgets.

According to the FCA, there were £2.7bn worth of BNPL transactions in 2020, with research suggesting the market more than doubled to £5.7bn last year. The cost of living crisis and reliance on credit suggests that reliance on BNPL will only increase during 2022.

Last year, the government announced a consultation ahead of regulation of the BNPL industry. Regulation is yet to be implemented but lenders also need to improve the UK’s financial literacy to protect borrowers.

Neil Kadagathur, co-founder and CEO of Creditspring, comments: “Ever since payday loans have been driven out of the mainstream, BNPL has been viewed as the new wild west of the borrowing industry.

“Regulation is welcome but the misconceptions amongst borrowers, that BNPL is risk-free or isn’t a form of borrowing that can lead to debt, are a much bigger issue. Regulation won’t go far enough – lenders need to ensure they develop awareness amongst borrowers of the risks that BNPL poses.

“Borrowers must be protected – currently, they are in real danger of falling into another credit trap as they continue to rely on BNPL as a crutch to struggle through until payday. Worst-case scenario is that borrowers can end up receiving a knock on the door from a debt collector, but currently the vast majority are completely unaware this is even a possibility.”