One in five using BNPL to fund essentials

1st September 2023

New research by the Money and Pensions Services (MaPS) has found that one in five (almost two million) Buy Now Pay Later (BNPL) are using it for essential items such as groceries (11%), toiletries and hygiene (8%), household bills (5%) and fuel (4%).

There are an estimated 10.1 million BNPL customers in the UK and MaPS says that although it can be very useful, people need to consider it as carefully as any other credit product and use it in the right way.

The poll also revealed that over half of users (55%) currently have an outstanding payment, while 33% have at least two. Of those with payments outstanding, more than half (55%) owed more than £100, while one in seven (14%) owed over £500.

BNPL is also changing how people shop, with two thirds (69%) saying they have used it even though they’d originally intended to pay for the item in full. Meanwhile, 44% had checked for BNPL whilst shopping and 38% had spent more than they planned to because it was available.

Respondents broadly reacted positively to BNPL, with 82% finding it easy to understand and 76% saying it was easy to manage and pay off. However, 32% had faced an issue managing their spending, with 14% of customers missing a payment and 14% charged a late fee.

Asked what had caused the issue, ‘prioritising other borrowing repayments’ (34%) and ‘not knowing a payment was due’ (32%) were among the top responses. ‘Not knowing they would be charged a late fee’ (22%) and ‘borrowing too much’ (21%) also featured prominently.

One in ten had taken money from savings (13%) or used a credit card (10%) to make a repayment.

Responding to the findings, MaPS says that BNPL could be a useful and effective short term credit option. However, it says people should consider how they will repay it, especially as you may be approved for it even if you can’t afford the repayments.

It also warned that if it’s the wrong option for someone’s circumstances, such as when it becomes long term borrowing, the situation can quickly become difficult and may affect their credit score.

As a result, MaPS is urging anyone struggling with BNPL to use its free, independent MoneyHelper service.

Jackie Spencer, Head of Money and Pensions Policy at the Money and Pensions Service, said “Buy Now Pay Later can be a useful way to spread the cost of purchases and it often provides a real lifeline to those needing short term borrowing for essentials. However, like all credit products, it’s an important decision and everyone should take time to decide whether it’s right for their circumstances.”

“This research shows that many people are using it when they hadn’t intended to and spending more because it was available. It’s absolutely crucial that they make sure they can afford the repayments and don’t risk turning a short term product into long term debt.”

“If you’re struggling with Buy Now Pay Later, or any credit repayments, I’d urge you to seek help today via our MoneyHelper service. You don’t have to go through this alone.”

Ellie Lugt, Senior Advisor at the Behavioural Insights Team said “Buy Now Pay Later products are useful for many people to smooth their spending, but customers can be supported to better manage their repayments. Providers and retailers may be able to support customers by sending timely payment reminders and displaying simple disclosure notices, so that customers are clear on what they are signing up for.”

Neil Kadagathur, Co-Founder and CEO of Creditspring, said “Despite increasing usage and reliance on BNPL, there is still a severe misunderstanding of how it actually works and the risks of using it. After a year of rising costs, household finances have been stretched to breaking point – many are using BNPL as a crutch until payday but our research shows that 16 million people across the UK are still unaware that it can lead to debt.”

“Almost one in three people remain unaware that BNPL is a form of borrowing, with misunderstanding much higher amongst younger people despite them being the biggest BNPL users. The concern is that users are unknowingly putting themselves at risk of longer-term debt by turning to BNPL products for essential purchases which could put their future financial position under even more strain. In the worst-case scenario, BNPL users can be referred to debt collectors for missing repayments – yet half of people have no idea this is a possibility.

“The onus has to be on lenders to ensure that borrowers understand the risks and support them before they rack up huge debt piles. Regulation of this sector can’t come soon enough yet we’re unlikely to see it this year, meaning households will have to struggle through the expensive back to school and Christmas periods without the support they need.”

Alastair Douglas, CEO of TotallyMoney said “While the headline figure shows that inflation is slowing, the cost of living is still increasing. We’ve not yet recovered from the 2008 credit crunch, and fifteen years of sustained wage stagnation has left workers £11,000 per year worse off.”

“Nearly nine million adults are struggling to cover everyday essentials, and they’re turning to credit to help plug the gap. However, more than 20 million people in the UK are financially under-served — and they have nowhere else to turn other than high-cost, unregulated or illegal lending.”

“Buy now pay later falls into this category, and while it can provide users with some breathing space, the lack of regulation creates a grey area, meaning customers might not know what they’re signing up for, or how the product works.”

“Research shows that one in four lack confidence in their understanding of buy now pay later, and one in five have reported to be in arrears. In addition, 68% of BNPL borrowers are concerned about their level of borrowing.”

“More needs to be done to support people who are unable to make ends meet. The government must act in the customers best interest of buy now pay later customers, and to regulate the unregulated. Generation inflation will be feeling its impact for the foreseeable future, and the last thing they need is a damaged credit file which could hold them back for years to come.”