Buy now, pay later is often advertised as a way of delaying payments on clothes or gadgets, but a leading UK charity has reported a concerning rise in people using the short-term credit for food shopping.
One in twelve Britons are now using BNPL to cover everyday essentials, according to Citizens’ Advice, with vulnerable adults relying on the service most.
It also found that young adults, those in debt and those on Universal Credit were twice as likely to use BNPL for essentials than the general public.
BNPL schemes are now offering higher credit limits without credit checks – leaving the financially vulnerable at risk of falling into significant debt, says Citizens Advice
The charity said its frontline advisers had reported increased use of BNPL services, which include Klarna, Clearpay and Laybuy.
It said there were examples where parents had used the delayed payment schemes to buy baby clothes while waiting for a benefit payment, for example, and that those in debt were using BNPL to do food shops.
Some firms offering the BNPL payments are also contacting customers, some of whom are vulnerable, to tell them they can increase their credit limits by hundreds or even thousands of pounds.
Citizens’ Advice gave the example of a pensioner, Audrey, who used BNPL for her £40 food shop when she was running low on funds.
Despite struggling to repay her debt, it said the provider had since bombarded her with offers to borrow hundreds of pounds more.
The pensioner said: ‘It was either use BNPL or starve, so I used it.
‘I sort of knew I would struggle to make the repayments but I did not have any other way of getting food. I bought canned food as they are non-perishable and would last me longer.
‘I have been struggling to repay the money. They constantly harass me, calling me for payments. It’s really stressful as if I could afford to pay it back straight away, I would.
‘This company also sends me texts and emails offering £100 credit and even £500. It makes no sense as I can’t even manage to repay £40, how would I repay £100 or even £500?’
‘I’ve been swarmed with offers of higher credit limits’
Younger customers are also being offered the higher credit limits.
Lewis, 28, who works at a legal start-up in London said he had been offered a credit limit of up to £2,000 through one BNPL provider.
He said: ‘I used a buy now, pay later service to help buy some furniture when I moved house last year. It’s an expensive process, and I just wanted to split the cost of a couple of items over a three-month period.
Credit cards have the advantage of section 75 purchase protection, as well as having the potential to improve a person’s credit score if used responsibly
‘Since then, I have been swarmed with offers and notices of increased credit limits as the providers are trying to get me to use their services again.
‘I worked with StepChange a few years ago to help clear my gambling debts, so I’m very cautious of how I spend and where I lend from in the future. This whole thing seems very predatory for those who may be struggling with their finances.
‘If I’d still been in thousands of pounds in debt when these services were popular, I doubt I’d have ever cleared it.
‘These companies don’t know my history so I don’t think its right that they should be offering such high credit limits when they don’t know if the person borrowing is able to repay them comfortably.
A pensioner has reported being bombarded with offers of higher credit limits by a buy now, pay later provider – despite struggling to repay her initial debt (image posed by model)
Citizens Advice has been calling for urgent regulation of the sector, including for consistent, market-wide affordability checks and for BNPL firms to make the consequences if things go wrong clearer for consumers.
Dame Clare Moriarty, chief executive of Citizens Advice, said: ‘The fact that people are turning to buy now pay later for their groceries really hammers home the urgent need for industry regulation.
What happens if a buy now, pay later debt is not repaid on time?
If BNPL debts are repaid on time, many companies do not charge any interest.
But if they are paid late, there are usually fees to pay – and if the sum remains unpaid, the provider can use bailiffs to recover it.
Clearpay’s terms state: ‘We give you till 11pm on the following day to make your repayment and then you will incur a late fee for a missed payment that is not resolved. This will be an initial £6 and a further fee of £6 if the payment is not made within seven days. If you are facing hardship, we have hardship policy that allows us to work with you to get you back on track.’
Laybuy states: ‘If you fail to pay within 24 hours of the due date, we will charge you a default fee of £6. If you do not rectify your default by making the missed instalment payment within the next seven days, we will charge you a further default fee of £6. We may also arrange for a debt collection agency to collect from you the amount you owe us.’
Klarna states: ‘If you do not pay for your order on time by the due date, you shall no longer be able to access Klarna’s payment options for future purchases. For purchases where payments are frequently missed, Klarna may use debt collection agencies to recover your outstanding balance.’
According to Citizens Advice, those chased for arrears by a bailiff can expect to be hit with an initial £75 penalty.
Failure to pay up, resulting in a debt collector knocking on your door, can trigger a further penalty of £235 and a 7.5 per cent fee on any amount owed above £1,500. This means a debt of £2,500 may trigger total penalties of £150.
People unable to clear the debt face being charged £110 for having valuables repossessed and sold at auction.
‘As living costs spiral, we fear more people in desperate situations will see this unregulated form of credit as the answer.
‘The government must keep pace with these firms and ensure consumers are protected.’
Meanwhile, Gillian Percival, a benefits caseworker at Citizens Advice Copeland, added: ‘Buy Now Pay Later is a double-edged sword.
‘It can be useful if you understand what you’re getting into, but if you’re using it out of desperation you probably have no way to repay.
‘We try to help people with food bank and fuel vouchers, but some people are embarrassed to ask for help if they’re struggling. If they use buy now pay Later they’re invisible.
‘They don’t need to speak to anybody, with a few clicks they can borrow instead. They can resolve their problems immediately without having to worry about the consequences.’
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