Almost eight in 10 Brits (78%) have admitted to being unclear about the risks associated with missing Buy Now, Pay Later (BNPL) repayments despite being outlined in their credit agreement. Risks include high interest rates leading to larger sums needing to be repaid, an impact on your credit score and future savings and borrowing prospects. This is according to NerdWallet’s Consumer Borrowing Index, a nationally representative survey which investigated attitudes towards spending and borrowing among 5,000 adults living in the UK.
These findings are even more pertinent considering the growing popularity of BNPL. Three in 10 of the shoppers surveyed had used schemes, such as Klarna and Afterpay, making BNPL the second most popular form of credit among those surveyed. Consumers still preferred traditional methods of borrowing, such as credit cards and store cards, which came out on top, outranking BNPL in the survey.
Although usage of BNPL schemes is growing, the debate around their safety rages on. The issue has split the nation: 43% of survey respondents regarded these schemes as risky, while 47% saw them as a safe way to spend.
Even though a small majority felt safe when using BNPL schemes, alarmingly, over half (51%) admitted to not always reading the T&Cs, which NerdWallet discovered takes an average 36 minutes to read through. Ironically, nine in 10 agreed that it is important to fully understand the T&Cs of a credit or loan product before using it.
Almost half (46%) of consumers also lacked knowledge on whether BNPL schemes are regulated by the Financial Conduct Authority (FCA) and over a quarter (28%) didn’t know how using them resulted in the loss of their Section 75 Consumer Protection.
A total of 36% of UK shoppers surveyed said that they were more likely to make impulse purchases because of BNPL services. This highlights the danger that comes when services like Klarna and Afterpay are so readily available, as consumers can become more susceptible to frivolous spending and rack up debt.
Denise Ko Genovese, Senior Editor at NerdWallet, said: “Used responsibly, Buy Now, Pay Later schemes can help consumers to spread the cost of their online shopping. However, they can have a huge impact on your credit score if you are not careful. It can be tempting to skip past lengthy T&Cs, but shoppers should be aware of the potential charges and other repercussions that may come their way when payments are missed.
“We should all be wary of being enticed by the ease of deferred payments on non-essential items. The idea of not having to pay off your £200 online spending spree until next year can be tempting but it is important to remember that the reason you’ve deferred payment is probably because you can’t afford it right now. So will you really be able to pay it off in 12 months’ time?”