Rising interest rates and cost-of-living crisis to end reign of Buy Now, Pay Later

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A catastrophic combination of surging living and energy costs, alongside a looming economic recession has highlighted the severity of Britain’s debt culture. A recent study from The Money Charity reveals that personal debt across the nation totalled £1.8 trillion in June, up a staggering £62.5 billion from the same time last year. Averaging to £3,855 per UK adult and £64,970 per household (including mortgages), these staggering figures show that debt culture is seemingly engrained into society and Brits’ spending habits. In a period where households are desperate to keep up with rising costs, the nation’s leading and most-awarded budgeting app, HyperJar, has commissioned a landmark study which details and investigates Brits’ spending habits.

The proprietary research reveals that almost a FIFTH of Brits say their biggest debt comes from Buy Now Pay Later schemes – this figure rises to a staggering 27% for those aged 25-34. Further research from the money management app shows that over a quarter (28%) of people are more exposed to debt and spend culture than saving – subsequently highlighting the urgency to educate the younger generation about debt and how to avoid the significant repercussions that come with this.

An increase in overall consumer debt could raise even more concerns in the next year, especially as credit – traditionally used for spending that bring us enjoyment – begins to plague Brits who are desperate to make ends meet. Although 19% of Brits say that seeing money stack up makes them feel better, they’re still addicted to spending. This is further magnified in a recent study, which found that last year, 42% of 16-24 year olds used BNPL schemes, with 57% using this to refresh their wardrobe, and 47% using it to buy tech products.

This comes as millions of households are set to be plunged into fuel poverty this winter, meaning that many may turn to Buy Now, Pay Later or other schemes in an effort to live life as normal. With credit card borrowing also up £740 million from last June – 13% higher than the year before and the biggest increase since October 2005 – it is clear that households are under relentless pressure to meet monthly payments and dig their way out of their financial burden. However, despite the increase in borrowing, alarm bells are ringing for BNPL firms as defaults are predicted to increase in line with consumer spending power being slashed. Not only this, but rising interest rates have meant that it’s become more costly for BNPL firms to borrow money which is putting further strain on the business model.

Key Stats:

  • 17% of Brits say their biggest debt is due to using Buy Now, Pay Later schemes
  • 19% of say that seeing money stack up makes them feel better, but are addicted to spending
  • 28% of Brits are exposed more to debt and spend culture than they are to saving

With the cost-of-living crisis intensifying across the nation, the Financial Conduct Authority (FCA) has already warned that BNPL adverts could be misleading for consumers by failing to provide a clear warning of the risks of taking on debt they cannot afford to repay – even asserting that these companies could be committing a criminal offence if they do not comply with financial promotion rules. The financial watchdog recently issued a clear statement to firms, urging them to ensure that consumers – particularly those in vulnerable circumstances – are given the right information about BNPL schemes so they can make effective, timely and properly informed decisions. Alongside this, the leading BNPL service in the UK – Klarna – saw a record-breaking drop in its valuation, with losses quadrupling in the first half of this year. At the end of August, the company reported a net loss of $581 million, proving that the cost-of-living crisis is already taking its toll on consumer spending.

Mat Megens, CEO and founder of HyperJar comments: “Our research clearly shows emotional, ‘quick hit’ spending is a cause of debt for millions of people – especially for younger generations. It’s the financial hangover after that instant dopamine hit from spending. That obligation to pay for things after you’ve got them has a negative emotional effect, whether we know it or not, because we now have a debt which prevents is from doing other things in life.

“Recent research from Citizen’s Advice shows that a staggering 42% of people are actually borrowing money just to be able to meet their repayments for BNPL schemes, and it won’t be long before defaults drastically increase. Rising interest rates are also putting further pressure on these firms who rely on being able to borrow money cheaply in order for the business model to work. We’re already seeing the material effects of this with the huge slashing of valuations for businesses such as Klarna. I expect we will see more of a focus on the Save Now, Buy Later ethos that we’re championing at HyperJar.”