Demand for buy now, pay later deals has surged among all age groups in the UK, including older people, who find themselves squeezed by the cost of living crisis and in need of short-term credit.
The products, which allow users to defer or divide payments into instalments, have grown in popularity despite increasing regulatory scrutiny and concerns over the rate of consumer borrowing.
Younger users are still the group most likely to consider the products, according to a survey commissioned by UK-based financial education charity the Centre for Financial Capability. Of the 18 to 24-year-olds surveyed 54 per cent expect to take out a loan over the next year, a 6 percentage point increase compared to the same period 12 months ago.
More worryingly, say campaigners, is that demand has increased among older people — almost a fifth of over-65-year-olds say they had used the products or intend to do so in the next 12 months, according to the same survey, compared to less than 10 per cent last year.
“The fact that people of all ages are turning to buy now, pay later as they are struggling to meet payments due to rising inflation shows the need for urgent regulation of these schemes,” said Jane Goodland, trustee of the Centre for Financial Capability.
Demand for BNPL boomed during the pandemic and has continued to grow, according to data from UK open banking fintech Snoop.
Other markets have also spiked. In the US, loans made by Affirm, Afterpay, Klarna, PayPal and Zip increased from $2bn in 2019 to more than $24bn in 2021, according to the Consumer Financial Protection Bureau.
However, even as the cost of living crisis has increased demand, BNPL companies have suffered as central banks raised rates to control inflation while consumer spending sentiment has darkened, bringing once high-flying valuations down to earth.
Klarna’s valuation dropped from $46bn to under $7bn in July, while shares in listed American competitor Affirm have fallen more than 83 per cent over the past year.
Charities are worried about rising demand for credit as the cost of living situation bites. Bank of England data showed that credit card borrowing jumped to £1.2bn in November from £400mn in October.
In the UK, 45 per cent of adults are struggling to keep up with at least one bill or credit commitment, said Richard Lane, director of external affairs at debt charity StepChange.
“Resorting to credit to keep up with bills or essentials is unsustainable and ultimately exacerbates problem debt,” he added.
Close to 30 per cent of respondents who had used BNPL said they had done so because they were not able to pay the full amount at the time, and a growing proportion reported paying late fees. The CFPB also found these charges grew as a proportion of total revenues from less than 5 per cent in 2020 to almost 7 per cent a year later.
BNPL loans are interest-free so long as they are paid on time but some providers, such as Sweden’s Klarna, have removed late fees in markets including the UK.
Sharon McPherson, chief executive of Glasgow-based non-profit Scotcash also, warned of an “explosion” of BNPL use among applicants, as well as other forms of debt.
“We have seen more people on higher earnings, who may have maxed out credit cards, then gone on to BNPL and now they’re coming to lenders like Scotcash because there are no other options,” she said.
BNPL is currently unregulated in the UK. In June, the government laid out plans for new rules to improve consumer protection, including requiring providers to carry out checks that customers can afford to take out loans.
The Financial Conduct Authority has previously used the broader legislation of the Consumer Rights Act to drive providers to changes some contract terms.