01 Sept 2023

One in five 'buy now, pay later' shoppers using schemes for essential items

Paying for essentials such as food can be a sign of problem debt

Almost two million shoppers who use 'buy now, pay later' (BNPL) schemes are now using it for essential items such as groceries, according to research from the Money and Pensions Service (MaPS).

BNPL is a form of short-term credit that has become hugely popular in recent years – especially during the cost of living crisis, as the schemes give you the option to spread the cost of items interest-free over one to three months.

In the past, the schemes were centered around fashion and household items, but the borrowing options are increasingly available on a much wider range of purchases such as takeaways and groceries.

Here, Which? takes a closer look at how much BNPL debt shoppers are accumulating and offers tips for managing BNPL borrowing responsibly.

How much debt are BNPL users in?

In its survey of 2,507 BNPL users, MaPS found that more than half of those had an outstanding payment, and a third had at least two.

Of those with outstanding payments, over half owed more than £100, and one in seven owed more than £500.

Another recent analysis by two Bank of England economists found more than 3.1m households across the UK reported owing money to BNPL schemes. The average balance in this report was £833, which amounts to an outstanding balance of £2.7bn across the UK.

However, the Bank of England report said lots of BNPL users reported balances of a few hundred pounds or less, with only a small number reporting much larger balances.

Find out more: 'Buy now, pay later' schemes explained

Is BNPL debt a problem?

One in five using BNPL schemes in the MaPS survey said they used it for household essentials including:

Groceries: 11%
Toiletries and hygiene products: 8%
Household bills: 5%
Fuel: 4%

There are an estimated 10.1 million BNPL customers in the UK, so this equates to as many as two million BNPL shoppers now using the schemes for these expenses.

Last year, debt experts explained to Which? that borrowing to pay for essentials such as food can be a sign of problem debt after BNPL provider Zilch came under fire for marketing its product to pay for groceries and takeaways.

At the time Zilch argued it offered a better alternative to paying for food than using credit cards or overdrafts because these come with 'fees and high interest that compound problem debt'.

Find out more: Zilch advertising 'buy now, pay later' credit for groceries and takeaways

How to shop safely with BNPL schemes

When used responsibly, BNPL provides a way for you to access short-term credit with no fees, but there are risks to consider before using the schemes.

Here are some tips to shop safely and manage your BNPL debts.

Set a limit

The MaPS survey found four in 10 had spent more than planned because BNPL was available when shopping and one in five said they had borrowed too much.

If you use BNPL schemes regularly, it's worth setting a limit on your spending each month so you can ensure you can pay it all back within a short period.

Check the fees

The MaPs survey found one in five respondents who used BNPL didn’t know they would be charged a late fee, so always check before borrowing.

Both Clearpay and Laybuy charge £6 for missed payments, capped at £24 per purchase.

Klarna customers incur up to £10 for late instalments for orders of more than £20. If your order is £20 or less, the late fee will be 25% of the price of your purchase.

Find out more: Klarna to start charging late fees

Put in payment reminders

The MaPS survey also revealed one in seven BNPL users missed a payment. When asked what had caused the issue, one in three said they didn’t know a payment was due.

Most BNPL providers offer reminders via their apps. Alternatively, consider putting reminders in your calendar to ensure you never miss a payment.

Have a plan for repayments

Worryingly, one in 10 had to make the repayments with a credit card, according to the MaPS survey.

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 – you could get caught in a debt spiral.

Instead, talk to the provider to see how it could help. It might be able to extend the due date or offer an alternative repayment plan.

And remember, Klarna, Laybuy, PayPal’s ‘Pay in 3’ and Zilch will report missed repayments to certain credit reference agencies.

Also, if you continue to miss repayments, some BNPL providers will refer you to a debt collection agency.

Find out more: how to check your credit score for free

Get free debt advice

If you have BNPL debts that are making it more difficult to pay your priority bills it's important that you get free and confidential debt advice as soon as possible.

There are a number of debt charities you can contact for free if you're struggling with your finances, including Citizens Advice, MoneyHelper and StepChange.

Find out more:free debt advice contacts

'The need for regulation is clear'

Which? has been calling for urgent regulation of BNPL schemes for some time after uncovering concerns with how the schemes encourage impulse spending, how retailers promote the schemes online and how shoppers don't realise they are taking on debt.

Although the government committed to regulating the BNPL market, it was reported in July that plans could be shelved due to concerns some of the biggest providers could leave the UK market.

Rocio Concha, Which? director of policy and advocacy, said: ''Buy now, pay later services offer a convenient way to split the cost of items without paying the full amount upfront. In the midst of the worst cost of living crisis in decades, it is unsurprising that many more consumers are turning to BNPL to pay for essentials.

'Despite the many BNPL options on offer to consumers at the checkout, several providers offer scant information about the risks attached to using BNPL to pay - including the potential to fall into debt and the consequences of customers missing payments, such as the impact on credit scores.

'BNPL remains unregulated meaning lenders do not require authorisation by the Financial Conduct Authority, and consumers have fewer protections should things go wrong.

'Given more consumers are turning to BNPL to cover essentials, it is even more concerning that the government is reportedly reneging on previous commitments to regulate BNPL. Ministers should introduce plans for regulation as soon as possible.'