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How to pay off 'buy now, pay later' debts with Klarna, Clearpay and Laybuy
Borrowers are turning to their credit card to pay off interest-free 'buy now, pay later' (BNPL) debts from providers such as Klarna, Clearpay and Laybuy, according to a new survey by Citizens Advice.
Four in 10 BNPL customers ended up borrowing money to make their repayments in the past 12 months. This was higher in the 18-34 age group, where half (51%) had done this.
The types of borrowing included credit cards, bank overdraft, a personal, guarantor or payday loan, and borrowing from friends and family.
The survey of 2,288 BNPL shoppers found credit cards were the most popular type of borrowing being used to pay off BNPL debts.
BNPL schemes have soared in popularity in recent years, with companies such as Klarna, Clearpay and Laybuy partnering with high street and online retailers to allow customers to spread the cost of their shopping interest-free.
There are concerns, however, that BNPL schemes are encouraging people to spend more, and that a lack of regulation could lead to an increasing number of consumers building up unmanageable debts.
Here, Which? explains the risks of BNPL schemes and looks at ways to keep up with paying off BNPL bills.
Have you ever had an issue with a BNPL scheme? Tell us about it using our BNPL complaints form.
How do people accumulate BNPL debt?
BNPL schemes have become increasingly popular as you can purchase goods without paying a penny upfront and delay payments interest-free.
However, with different BNPL schemes affiliated to different retail sites, it's easy to build up multiple debts with various providers - making it hard to keep on top of what you owe.
Currently, BNPL providers that offer short-term interest-free borrowing aren't regulated and don't have to record how much you borrow and when you repay on your credit report like other regulated credit providers do.
This exemption means you will find some BNPL schemes that will now report to credit reference agencies and others which won't.
Also most BNPL providers only perform light-touch credit checks which means you may have access to more credit than you can afford.
Purchasing may be easy in the short term, but you could spend more than you normally would if you had paid upfront and when it's time to repay, it may be more difficult to keep on top of payments.
Some schemes charge late payment fees as high as £6, meaning your debt could surge if you can't pay what you owe on time, and others refer unpaid bills to a debt collection agency.
- Find out more: how BNPL firms encourage impulse spending
What protection do customers have?
BNPL lenders aren't currently regulated by the Financial Conduct Authority (FCA) because they don't charge interest, however in February the Treasury announced plans for providers to be regulated and will bring forward legislation 'as soon as parliamentary time allows'.
However, this means that until then BNPL users have fewer protections if something goes wrong, and providers don’t have to follow the same rules as other credit providers.
Which? is calling for urgent regulation of BNPL firms to ensure consumers are better protected when deciding to pay later at the checkout.
By giving the FCA the powers to regulate the BNPL market, it can more effectively monitor and intervene if consumers are harmed by BNPL business practices.
In February 2021, the FCA said BNPL must be covered by its rules 'as a matter of urgency' because of a 'significant potential for consumer harm'.
- Find out more: BNPL firms to be regulated
Six ways to manage BNPL debt
There are steps you can take to help manage and pay down your BNPL debts, which we outline below.
1. Avoid high-cost credit to pay off BNPL debts
If you're struggling to keep up with your BNPL debts, avoid turning to other high-cost credit like a payday loan or credit card that charges interest - as you could get caught in a debt spiral.
You can consider making a household budget plan that summarises your earnings and spending habits, so you have a clear idea of where your cash is going and where you can make changes to reduce outgoings and boost the money you have to pay down your debt.
If you stick to it, a budget plan will help you make sure you don't fritter away more than you earn and potentially help you work your way out of debt.
Follow our step-by-step plan to working out your household budget.
2. Set a BNPL shopping limit
Typically, BNPL schemes allow you to delay paying for items for between 30 days to six weeks, and allow you to build up bills as high as £2,000.
Some schemes will wait for you to make a payment, but others take payments automatically from your account, which could leave you short to pay for priority bills like your rent, mortgage or council tax.
If you use BNPL schemes regularly it's worth setting a limit on your spending so you can ensure you can pay it all back within a short period.
3. Set up alerts for payments
In a survey of 1,000 18 to 24-year-olds in March 2021, digital bank Zopa found 29% didn't know how much they owed to BNPL firms. It said this could mean as many as 800,000 18 to 24-year-olds across the UK could be in a similar position.
However, BNPL companies do have apps that you can download on your mobile phone to help you keep on top of payments.
For example, Klarna will send a push notification the day before your payment is due, and a text on the day your payment is due.
If you owe money to multiple BNPL providers and don't want to download the apps, consider setting repayment reminders on your phone to get more organised.
4. Prioritise payments with punishing fees
Most BNPL schemes are interest-free, but you can incur fees for late payments. These fees can be considerably higher than your initial purchase and vary significantly between providers.
Missed payments or failure to pay can also be noted on your credit report and the mark can stay there for six years.
You should make sure you understand the implications for missed or late payments with each scheme you are using.
PayPal 'Pay in 3', for example, allows you to spread the cost of purchases over three interest-free payments, which are taken automatically from your account each month.
By contrast, Clearpay and Laybuy charge a £6 late fee, while Klarna doesn't charge fees for late payments.
- Find out more: BNPL fees and conditions compared
5. Contact the BNPL scheme
If you think you will miss or have already missed a BNPL payment, don't bury your head in the sand - contact your lender to discuss your options.
They may grant your more time, cancel late payment fees or offer long-term measures, such as offering sustainable payment plans with realistic timelines.
6. Seek debt advice
If you have debts that are making it more difficult to pay your priority bills, then it's really important that you get free and confidential debt advice as soon as possible.
Debt charity Step Change can take a look at these debts and give free, practical debt advice and solutions on how best to pay these debts while staying on top of your most important living expenses.
You can also check out our list of free debt advice organisations.
- Find out more: 44 tips on paying off your debts
This article has been updated since it was first published in April 2021, to mention the latest survey data from Citizens Advice on using borrowing to pay off BNPL debt and information about government's intention to regulate BNPL providers. It was last updated on 8 June 2022.
