Debt Risk with BNPL in UK

Research from responsible lender, Creditspring, reveals that around 16 million UK residents are unaware of the potential financial risks linked to ‘Buy Now Pay Later’ (BNPL) services.

The study highlights a significant lack of understanding regarding BNPL services, with 31% of UK adults not realizing that such purchases can lead to debt.

Surprisingly, almost 29% of UK citizens are unaware that BNPL functions similarly to credit cards as a form of borrowing. Among the 18-24 age group, this percentage is considerably higher at 39% unaware of the associated risks. Moreover, only 23% of BNPL users feel entirely in control of their spending when utilizing these products.

The research also brought to light that 50% of young individuals are unaware of the potential extra costs incurred from late or missed payments to BNPL providers.

  • 46% of respondents had no knowledge that missed BNPL payments could lead to debt collection.
  • Only 44% of BNPL users were able to repay loans without any issues, while 9% admitted that using BNPL services had pushed them into debt.

Despite the unclear BNPL regulation from the FCA, Creditspring emphasizes the importance for lenders to prioritize borrower protection and practice responsible lending. The company raises concerns about the potential risks faced by vulnerable users who may currently manage their BNPL payments but could encounter difficulties in the future due to unforeseen financial changes, resulting in late fees.

According to Creditspring CEO Neil Kadagathur, despite the growing popularity of BNPL, there remains a significant lack of understanding about its workings.

“With household finances stretched to their limits after a year of rising costs, many people are turning to BNPL as a temporary solution without fully grasping the associated risks.”

Kadagathur stresses that lenders have a responsibility to educate borrowers about these risks and provide support before they accumulate substantial debt.

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By p2p