The UK's buy-now-pay-later (BNPL) sector has issued a stark warning about the growing debt crisis facing consumers. Figures from leading charities suggest that over 9 million Brits have used BNPL services in the past year, with one in five of these individuals struggling to keep up with repayments.
According to Citizens Advice and StepChange Debt Charity, the ease with which BNPL agreements can be entered into has led to a proliferation of debt among online shoppers. While these services allow consumers to defer payments or pay in interest-free instalments, they often come with hidden fees and charges that can quickly accumulate.
The average annualised rate of interest on BNPL plans is 24%, significantly higher than the UK's regulated credit rate cap of 29.9%. Furthermore, many users fail to appreciate the true costs associated with BNPL agreements, as 55% of those surveyed admitted to being unaware of the charges and fees incurred.
With the number of people using BNPL services set to reach an estimated 12 million by 2025, charities are urging policymakers to introduce stricter regulations to protect consumers. Campaigners argue that the current regulatory framework is insufficient, leaving a gap in consumer protections and exacerbating debt problems for vulnerable households.
The FCA's proposed guidelines for BNPL providers aim to address these concerns, but many experts believe they do not go far enough. As household budgets continue to tighten under rising living costs, the need for robust oversight of the BNPL sector has never been more pressing.