One in ten using BNPL for essentials

New research by Hargreaves Lansdown says that one in ten use Buy Now Pay Later (BNPL) to pay for essentials whilst a further one in four would consider using it.

The research also found that one in three people have either used Buy Now Pay Later to buy things like furniture, technology and white goods, or would consider it in future. Almost one in four have either already used it to buy fashion items (11%) or would consider it (13%).

Whilst one in four have either already used it to buy essentials (9%), or would consider it (16%) and almost one in five have either used it to pay for groceries (6%), or would consider it (12%).

Sarah Coles, Senior Personal Finance Analyst, Hargreaves Lansdown said “The unstoppable surge of Buy Now Pay later is spilling over into every area of our finances, and 17 million people have already used it to buy something online. While it can be a useful way to spread the cost of big one-off purchases, without paying interest, there are some worrying signs that this isn’t all we’re using it for. More people are using it to snap up little luxuries they don’t really need, and as prices soar, we’re also starting to fall back on it to cover the cost of the essentials. Both come with real risks.”

“BNPL has proven invaluable for anyone who needs to spread the cost of big one-off expenses that they need in a hurry but can’t afford right now. Being able to pay in instalments without interest on top is a welcome alternative to credit or store cards. So it’s hardly surprising that 15% of people have already used it to buy technology, and another 20% would consider doing so in future. Similarly, 14% have used it to buy white goods and another 22% would in future. And 15% have used it to buy furniture and 21% would consider it in future.”

“It’s becoming a more common way to buy the nice little extras we don’t need, but really want. More than one in ten people have used it to buy fashion items (11%), and another one in eight (13%) would consider it. Meanwhile, one in seven people have either already used it to buy a takeaway (6%), or would consider it in future (9%). There are a number of real risks when we start using it for luxuries.”

“There’s a good chance it will make you spend more. The providers say it boosts sales 30%, partly because when payments are made in instalments, people focus on the size of the first one rather than the overall cost. There’s also a risk that we don’t even realise we’re taking on debt. The positioning of the services, and the fact that it’s often the first option on the website, mean people may not realise this is a form of borrowing. Research from Which? found people thought of BNPL as a budgeting solution rather than as credit, so they didn’t take it as seriously.”

“And as a result of both of these things, we can end up borrowing too much. The average amount borrowed is between £65 and £75, but the basic credit assessments mean you can take on a huge number of them without considering the overall cost, and without any of the companies joining the dots. In some cases, this is on top of other debts. One bank told the regulator that 10% of their customers who used BNPL also used their overdraft. From the start of June, Klarna will report people using its services to credit reference agencies, so this kind of borrowing will be more visible, but right now this step is entirely optional for providers.”

“Even more worryingly, BNPL is pushing its way into shopping for essentials. One in ten (11%) people have used it to buy essential clothes – like a winter coat, and another 16% would consider it. Meanwhile, more than one in twenty people have already used it to buy groceries (6%), and another one in ten (12%) would consider it, while one in ten (9%) would use it for other essentials and another 16% would consider it.”

“Borrowing to pay for essentials feels like a solution in the short term, but by spreading the cost, it means pushing up your expenses for months, making it even harder to keep on top of your finances. It can easily mean you fall further and further behind each month. Nobody is pretending it’s easy to stay out of debt at the moment, because the sheer scale of price increases is causing nightmares for millions of us. But borrowing isn’t a solution: in the end it just adds to the problem.To make matters worse, because this lending isn’t regulated yet, if people run into trouble, they don’t have the same protection as regulated borrowing: if you struggle to repay, you’re subjected to whatever approach the company chooses. If they treat you harshly, the Ombudsman can’t step in and protect you from being hounded or treated unfairly.”