The cost-of-living crisis has seen buy now pay later (BNPL) overtake payday loans as the credit option of choice for the masses.
Virtually every major retailer now offers BNPL at their online tills, which can make buying that perfect pair of shoes, coat or computer console seem easy and affordable.
However, the net effect is that many young adults and people with mental disabilities are taking on debt without any proper checks on their ability to make repayments.
BNPL as a form of borrowing is now three times as popular as payday loans, while it is catching up with credit cards.
Details of changing spending and borrowing trends have been revealed in Lenvi’s 10th borrowing report. It also identified a growing demand for lifestyle lending which covers things like ‘Botox borrowing’, and so-called ‘influ-lending’, where famous faces use social media to promote financial products.
Lenvi operates lending technology for the likes of Barclays, Santander, Metro Bank and Admiral.
It found that 40 percent of people have used BNPL in the last five years, increasing to 47 percent of those under 44 and 70 percent for 18-24 year olds.
Lenvi said: “While interest rates on BNPL are nowhere near the levels offered by payday loans, concerns centre around people’s inability to track and manage repayments, particularly when people have multiple loans running in tandem – known as ‘loan stacking’.”
The research also found that 55 percent of people with mental health issues have used BNPL compared to 34 percent for the general population.
It said: “Previous research suggests that the uptake of BNPL among these groups is in part linked to impulsive tendencies linked with their conditions.”
Lenvi said these findings “highlight the growing need for buy now pay later to be regulated to avoid financial harm”.
Sebrina McCullough, director of external relations at Money Wellness, said: “BNPL makes it easier to spend especially when no other form of credit is readily available to you.
“It poses a particular risk to people with mental health problems, who are often more prone to impulsivity and memory loss. Keeping on top of payments is a struggle, especially if they’re juggling several at once.
“We’ve supported customers who felt they were being chased relentlessly for BNPL debt, which can also worsen mental health conditions.
“And we are concerned that without regulation and proper protection more and more people will find themselves spiralling into a cycle of debt.”
Richard Carter, the chief executive of Lenvi, said: “It is no wonder that frictionless lending is popular among people who have historically been excluded from the lending market due to complex application processes, less than clear information and strained relationships with financial services firms.
“But while it can help with day-to-day money management when used correctly, it should not be encouraged for survival borrowing.”
The study also found that BNPL is also more widely used by ethnic minorities at 60 percent compared to 35 percent of white people.
The study suggested this may be a reflection of the fact that, historically, ethnic minority groups have found it more difficult to access other forms of credit from banks and other lenders.
