Money Wellness
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category iconcost of living
calendar icon06 Oct 2023

Cost of living forcing people to rely on payday and buy now, pay later products

The cost-of-living crisis is forcing a growing number of people to take out payday loans or use buy now, pay later (BNPL) products to make ends meet.

In a speech that was reported in the industry trade magazine CCR, the Financial Conduct Authority (FCA) warned that rising prices have pushed people into debt, with many finding they’re denied access to a range of financial products, forcing them to rely heavily on payday loans or BNPL to get by.

The FCA’s analysis showed people in financial difficulty grew from 8% in May 2022 to 11% in January 2023, meaning 5.6 million people are now in financial trouble.

The number of adults finding it a burden to pay bills has also increased from 15% to 21% during the same period, while 2.1% of the population don’t have a bank account and are unable to access normal credit products.

The FCA warned that the squeeze was making some people ineligible for mainstream credit products and tipping them into debt via BNPL and payday loans.

The FAC capped the amount of interest and default that could be charged by payday loan companies in 2015. And it is to look at regulating the BNPL sector next year to ensure people have access to affordable credit in a more protected manner.


What is buy now, pay later (BNPL)?

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.

Certain BNPL lenders make hard credit checks every time you spread payments – these checks will appear on your credit file and can affect your credit score.  

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.

BNPL is not currently regulated by the FCA.

What are payday loans?

Payday loans are short-term loans for small amounts of money. Payday loans can be easy to get but interest rates are high compared to other products.

If you decide to get a payday loan, shop around, and compare the interest and charges before you borrow.

Following FCA regulation in 2015, if you take out a 30-day loan and repay on time you should not be charged more than £24 in fees and charges for every £100 borrowed. If you default – don’t make payments – on the loan, the lender can only charge you £15.

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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