Alarming findings from a research study commissioned by the Centre for Financial Capability (CFC), a UK-based financial education charity, revealed that nearly one-quarter of buy now, pay later (BNPL) users have faced late repayment fees., the Financial Times (FT) reported.

The use of BNPL services in the UK has surged over the past year, reaching new heights as consumers turn to this unregulated form of credit to navigate escalating living costs.

These products offer a convenient way for shoppers to spread payments for items like clothes and food deliveries over interest-free weekly or monthly instalments.

While Fintech giants such as Klarna, Clearpay, Laybuy, and PayPal Credit initially pioneered BNPL, traditional banks such as NatWest, Virgin Money, HSBC, and Monzo have joined the fray, emphasising the need for vigilance and consumer education in the evolving landscape of alternative credit.

Impact on users – late fees and credit scores

According to the FT, research commissioned by the CFC found that 22% of BNPL users have missed one or more repayments in the six months to December 2023.

Younger consumers, aged 18-34, bear the brunt, with 34% experiencing charges for missed repayments in this period. The news agency added that one-quarter of those who missed payments suffered credit score setbacks or were contacted by debt collection agencies.

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Lack of awareness and increasing usage

The FT added the study sheds light on a concerning lack of awareness among users, as 21% admitted uncertainty regarding late repayment fees and their impact on credit scores.

The rise in BNPL usage is observed across the age spectrum, with the 25-65 age group showing increased adoption. Surprisingly, despite a slight decline in overall late fees, the number of individuals aged 55 and above facing penalties rose from 7% to 10% in 2023.

CFC trustee, Jane Goodland, expressed concern, stating:

“As the ongoing cost of living crisis continues to impact the British public, it is apparent that many users are increasingly reliant on these schemes, without fully understanding the risks involved.

“Our polling shows the high usage of BNPL particularly [among] young people, many of whom are facing difficult financial consequences as a result of these schemes,” Goodland added.