Financial experts have issued a stark warning regarding the risks posed by Buy Now Pay Later (BNPL) schemes, especially for young individuals who may not fully comprehend the potential financial pitfalls. Despite being the second most prevalent form of borrowing, recent research has revealed that half of individuals aged 18-34 lack a thorough understanding of the potential consequences associated with BNPL.
In particular, experts have voiced concerns about the lack of awareness among young individuals regarding the fees and charges linked to BNPL, which have the potential to swiftly accumulate and result in debt. Furthermore, many in this age group are unaware that failure to repay BNPL debts can lead to involvement of debt collectors.
The debt charity StepChange conducted research which uncovered a troubling link between the use of BNPL and financial difficulty. Their findings revealed that individuals with BNPL debt are three times more likely to experience problem debt compared to the national average for all UK adults.
Another study by lender Creditspring found that an astonishing 6.7 million young individuals in the UK are oblivious to the potential debt implications associated with using BNPL to fund their lifestyles. Additionally, over a third of young people are using BNPL at least once a month, indicating a widespread dependence on this form of credit.
One of the primary concerns highlighted by experts is the absence of regulation surrounding BNPL, which leaves consumers with limited avenues for seeking redress in instances of unfair charges or treatment. Indeed, only 37% of young individuals feel confident about their ability to make repayments for BNPL debts.
These findings have raised apprehensions about the growing prevalence of BNPL usage, particularly among younger individuals with limited financial experience. Experts are calling for urgent regulation of the BNPL sector to safeguard consumers from potential financial hardship and to ensure greater transparency about the associated risks.
Simon Trevethick, a spokesperson for StepChange, emphasised the necessity for government intervention in regulating the BNPL sector, citing the vulnerability of younger consumers who may be more susceptible to falling into problem debt as a result of using BNPL.
Neil Kadagathur, the chief executive of Creditspring, echoed these concerns, underscoring the urgent requirement for regulation to address the lack of transparency and confusing terms associated with BNPL. He stressed the importance of holding BNPL lenders accountable to protect borrowers from potential financial harm.
In light of these cautions from financial experts, it is evident that there is a pressing need for greater awareness and regulation of Buy Now Pay Later schemes to protect consumers, particularly young people, from falling into the potentially dangerous trap of unsustainable debt.