Money Wellness
category iconcost of living
calendar icon30 Aug 2023

Buy now pay later sales surge as cost of living crisis grows

Buy now pay later (BNPL) provider, Klarna, has added an additional one million new customers in the past year, with people increasingly keen to spread the cost of purchases as the cost of living crisis deepens.

In a statement, Klarna said that customer numbers increased from 17 million to 18 million in the past 12 months – up one million on the same period last year.

The average age of users has also changed - rising from 33 in 2021 to 36 today - suggesting the product is increasingly being used by households who are struggling with living costs.

This has raised fears that people are increasingly overspending on BNPL and building up debt that they might not be able to pay off.

This was echoed in a recent survey by Creditspring, which found that around half (47%) of adults didn’t know that BNBL could get them into debt.

A further third (32%) didn’t regard BNPL as a form of borrowing and, most worryingly, 47% were unaware they could be eventually referred to a debt collector if they missed payments.

 

What is buy now pay later?

Buy now pay later offers an interest-free way to spread the cost of a purchase.

It can be a good option providing you’re able to keep up with repayments.

BNPL gives a choice of repayment options, such as paying in several equal amounts - usually monthly but it can also be weekly or fortnightly - or paying the fixed amount in one go on a set date.

BNPL is offered when you come to checkout - usually online but it’s becoming increasingly available in shops too.

It’s typically offered by a separate credit provider, not the retailer you’re buying from, and it’s currently unregulated. This means the Financial Conduct Authority hasn’t given providers a set of rules to follow and you don’t get full consumer protection if something goes wrong.

Who offers BNPL?
There are several different providers offering buy now pay later including:

  • Klarna
  • Laybuy
  • ClearPay
  • Openpay
  • Zilch
  • Flava
  • PayPal

Flava is only available for food and grocery shopping. It works slightly differently – you must make a first payment when you place your order and then pay the rest off in three weekly instalments.

Some retailers also offer their own schemes such as Next, Very and Littlewoods.

 

BNPL can affect your credit score

It’s important to be aware that like any other form of credit, BNPL can affect your credit score.

Certain BNPL lenders make a hard credit check every time you spread payments over a long period.

These checks appear on your record and lots of hard checks can affect your credit rating.

Failing to make a payment on time will also have a negative impact on your credit score.

Even if your BNPL purchases don’t appear on your credit history, you’ll be asked about whether you have used the product during affordability checks is you apply for other credit.

If you have used BNPL a lot, it might affect the likelihood of your applications being accepted.

 

What happens if you miss a BNPL payment?

If you don’t keep up with repayments, you could be charged a fee or the payment may be rolled into the next instalment, meaning you’ll have to pay double the next month.

If you’re unable to make payments, some BNPL providers will pass your debt onto a collection agency.

This means if you’re struggling to pay, it’s important to contact your BNPL provider and talk to them about your situation. Most will try to work with you to find an affordable solution.

Avatar of Caroline Chell

Caroline Chell

Caroline has worked in financial communications for more than 10 years, writing content on subjects such as pensions, mortgages, loans and credit cards, as well as stockbroking and investment advice.

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