One-quarter of UK buy now, pay later users hit by late repayment fees

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Almost one-quarter of UK buy now, pay later users have been charged late repayment fees, with younger consumers hit hardest, according to research that points to how people have turned to the unregulated form of credit to cope with rising living costs.

Buy now, pay later (BNPL) products allow shoppers to pay for clothes and food delivery shops, for example, in mainly interest-free weekly or monthly instalments.

The payment method, where users are charged if they repay loans late, has increased in popularity over the past year, in part because it enables users to avoid shelling out on goods in full and upfront. But regulators and consumer groups have voiced concerns over the risk of indebtedness.

Research commissioned by the Centre for Financial Capability (CFC), a UK-based financial education charity, found that 22 per cent of BNPL users have missed one or more repayments in the six months to December 2023.

Of those people, more than one-quarter took a hit on their credit score as a result or were contacted by a debt collection agency, according to the survey.

Young people were most likely to receive late fees, with 34 per cent of users aged 18-34 charged for missing a repayment over the same period.

Although the overall number of BNPL users hit by late fees declined slightly year on year in 2023, the number of people aged 55 or over fined for missing a repayment increased from 7 per cent to 10 per cent.

CFC trustee Jane Goodland said: “As the ongoing cost of living crisis continues to impact the British public, it is apparent that many users are increasingly reliant on these schemes, without fully understanding the risks involved.

“Our polling shows the high usage of BNPL particularly [among] young people, many of whom are facing difficult financial consequences as a result of these schemes,” she added.

The charity found that 21 per cent of users were unclear what late repayment fees they would owe the company if they missed a repayment, as well as how this would affect their credit score.

Its study found that the use of BNPL was on the rise among people aged 25-65, and most popular with younger users. One-third of UK adults have used the method in the past, compared with 40 per cent of people aged 18-34.

Fintech groups including Klarna, Clearpay, Laybuy and PayPal Credit pioneered BNPL but a number of banks including NatWest, Virgin Money, HSBC and Monzo now also provide the product.

According to the survey, one-quarter of all people who have used or intend to use BNPL did so or would do so because of inflation and rising living costs. The figure is higher among people 65 or over, with 30 per cent of people in that age group citing the cost of living as their driver.

BNPL, which is largely interest free, is unregulated in the UK, meaning providers do not have to run affordability checks on prospective users.

Consumer groups have warned that the current set-up can lead people to accrue debt if they build up bills from various late repayment fees on products from different providers.

The UK government first said it would regulate interest-free BNPL products in February 2021. The Treasury opened a consultation in early 2023, and set out plans to bring the sector under regulation at the end of last year.

In Australia, where BNPL is more mainstream, the government said in May last year that it would bring the products under consumer credit regulation.

Goodland said the need to protect consumers from “dangerous financial trends” including BNPL was “urgent” and pressed stakeholders to educate users about the risks.

“Financial education is by no means a silver bullet, but . . . coupled with government regulation on BNPL services, [it] can ensure that people are protected,” she said.