Buy Now Pay Later (BNPL) has grown massively over recent years, with options to defer payment being offered for everything from clothing to groceries. Used responsibly, this can be an effective method of obtaining credit to give flexibility in budgeting. However, it can also lead consumers into spiralling debt.
The government promised to introduce regulation for the sector, but recent reports suggest they’re considering shelving this. And this comes at a time when a survey suggests that an alarmingly high number of people are completely unaware of the risks involved in BNPL.
What Is BNPL?
BNPL is essentially a form of buying on credit. The customer signs an agreement with a credit provider, under which they pay nothing at the time of the purchase, but start making regular repayments after an agreed length of time.
As with any credit agreement, penalties can be imposed if the customer misses a payment — and, in an unregulated market, these can be quite substantial. An additional problem is that lenders are under no obligation to make credit checks, as they are for other types of credit, meaning that customers — often those with the greatest financial difficulties — can end up with multiple BNPL agreements that they can’t afford.
Widespread Ignorance of the Consequences of BNPL
According to a survey by Creditspring, a lender, 31% of people are unaware that BNPL can lead to debt. Even more concerningly, this figure jumps to 51% for 18-24-year-olds, who make the group most likely to use this approach to buying.
A similar proportion of this group are unaware that late fees can be imposed if they miss payments. At the same time, 46% of all those surveyed didn’t know they could be referred to a debt collector if they should fall into arrears.
Government Regulations on Hold?
A number of national media outlets have reported that the Treasury is considering abandoning its plans to bring in regulations for BNPL lenders. These would have forced them to run credit checks and improve their communication about what the customer would be taking on.
While the Treasury hasn’t commented on this, debt charities have reacted with alarm. Richard Lane, Director of External Affairs at StepChange, commented that, “This seems particularly counter intuitive during a cost-of-living crisis, where protecting financially vulnerable customers is more important than ever.”
In the absence of any such regulations, it’s important that customers take extreme care — and this may include owners of small businesses who are struggling with cashflow problems. It might be better to apply for a regulated form of credit — and, if you’re refused, treat it as a wake-up call.
Even better would be to address those cashflow problems directly, including making improvements to your credit control. If you need help staying clear of the temptation of BNPL by getting what you’re owed, give me a call to see how I can help you.