Money Wellness
a group of diverse people
category icondebts
calendar icon11 Apr 2024

Vulnerable and minority groups are twice as likely to use unregulated buy now, pay later loans

Vulnerable groups are twice as likely to use ‘buy now, pay later’ loans (BNPL) a recent report by Lenvi finds. In a 2013 report, Lenvi revealed that worries over payday loans were high, and one in ten people thought they were a form of easy-access, high interest finance.

The FCA clamped down on payday loans in 2015, and now BNPL loans have soared in popularity. Amongst Gen Z, BNPL is even more widely used than credit cards, the research finds.

This unregulated, easy access borrowing model has been used by two in five (40%) within the last five years:

  • 47% of people under the age of 44 have used a BNPL loan in the past five years
  • 70% of 18-24 years olds have used a BNPL in the last five years

Why are BNPL loans concerning?

Interest rates on BNPL products aren’t anywhere near the levels offered by payday loans, but most worries centre around the fact people may not be able to track or manage repayments.

This concern doubles if people have multiple loans running at the same time (loan-stacking).

BNPL also presents a worry as only a quarter of people have said it’s made it easier to manage their money- with the sheer amounts of other people, especially of the younger generation, using BNPL, debt could increase.

The relationship between BNPL, vulnerable and minority groups

55% of people with a mental health condition and 52% of those with a cognitive disability have used BNPL. In comparison, just one in three people who do not have these conditions have used BNPL.

Previous research suggests that the uptake of BNPL among these groups could be linked to impulsive tendencies linked with their conditions.

 People with certain cognitive disabilities may also struggle with accessing and understanding complex documentation that usually come with finance applications, which explains the appeal of the easy access BNPL journey.

The report highlights the need for BNPL to be regulated in order to avoid financial harm and for the industry to improve accessibility and financial education for vulnerable groups.

BNPL is also more widely used among ethnic minorities, with 60% of ethnic minorities having used it to borrow money compared to just 35% of white people.

Although people from ethnic minorities are more likely to get help from financial providers, BNPL allows them to bypass processes that have historically been exclusionary towards them.

Overall, the report shows a deep need for more support for these vulnerable and minority groups as many of them turn to relatives or friends for a loan because they’ve faced exclusion in the past from the industry, and don’t trust it.

Sebrina McCullough, director of external relations at Money Wellness, states: “Whilst the findings of Lenvi’s survey are concerning, they’re also not surprising and very much mirror what we’re seeing. BNPL makes it easier to spend especially when no other form of credit is readily available to you.

“It poses a particular risk to people with mental health problems, who are often more prone to impulsivity and memory loss. Keeping on top of payments is a struggle, especially if they’re juggling several at once.

“We’ve supported customers who felt they were being chased relentlessly for BNPL debt, which can also worsen mental health conditions. And we are concerned that without regulation – that now won’t be happening before the election - and proper protection more and more people will find themselves spiralling into a cycle of debt.”

Why are vulnerable and minority groups using BNPL?

Survival borrowing

Borrowing money in general is more likely for some vulnerable groups, as Lenvi states that over half of people in these groups have been more likely to borrow in the last year:

  • 54% of those with mental health conditions
  • 51% of those with cognitive disabilities
  • 56% of LGBTQ+ community
  • 50% of ethnic minorities

There’s a strong connection here to ‘survival borrowing’ because poverty and financial hardship is more common among these groups.

According to Experian, 62% of LGBTQ+ have experienced financial problems because of their gender identity or sexual orientation, and ethnic minorities are half as likely to have savings than white household.

One standout finding was that for people with cognitive disabilities, mental health conditions and long-standing illnesses- they’re more likely to rely on borrowing to cover unexpected short term costs than those who do not have any of those conditions. More ‘privileged’ groups borrow much higher amounts for single transactions, which suggests that they take a longer term approach to borrowing.

Richard Carter, CEO of  Lenvi says: “Our report highlights the growing need for Buy Now Pay Later and other forms of embedded finance to be regulated. It is no wonder that frictionless lending is popular among people who have historically been excluded from the lending market due to complex application processes, less than clear information and strained relationships with financial services firms. But while it can help with day-to-day money management when used correctly, it should not be encouraged for survival borrowing.

“Lenders must focus on creative solutions that will generate positive friction and save the most vulnerable from financially and mentally harmful situations.”

Struggling with your debts?

Our free debt advice is available to people all over the UK, online or over the phone. We’ll go through your finances in detail and explain your options. You might be surprised at the range of help available. We can: 

  • check you’re getting all the benefits you’re entitled to
  • help you with budgeting
  • advise you on debt solutions

 There are various debt solutions available that reduce your monthly debt repayments and even write off some of your debt. We’ll let you know if any of them are suitable for you. All our advice is free. Some debt solutions are free, while others come with a fee. We’ll give you all the information you need to make an informed decision and, if we recommend a debt solution and you decide to go ahead, we’ll help get it set up.

You can read our guide for more details before getting in touch if you’d like.

Avatar of Lydia Bell-Jones

Lydia Bell-Jones

With a background in banking, Lydia has been writing professionally for over five years. She is passionate about helping people improve their personal finances and has a particular interest in the connection between money and mental health.

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