Warning as Buy Now Pay Later schemes threaten ‘debt timebomb’ | Personal Finance | Finance

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Millions of young people using Buy Now Pay Later (BNPL) to fund their lifestyles are unaware of the financial perils involved.

Despite BNPL being the second most common form of borrowing, half of people aged 18-34 do not understand it can lead to debt.

Some 46 percent did not understand that these could generate fees which soon pile up. And the same proportion did not realise they could be referred to a debt collector.

Experts at the debt charity StepChange pointed to research revealing a concerning correlation between use of BNPL and financial difficulty.

Its recent polling showed that those with BNPL debt are three times more likely to be in problem debt – 23 percent versus as average of 8 percent for all UK adults.

Research by lender Creditspring found 6.7 million young people (aged 18-34) do not understand the debt implications of using BNPL to fund their lifestyles.

The findings come for the lender’s fourth Financial Stability Tracker found more than three in ten – 36 percent – of young people are using BNPL at least once a month.

Bizarrely, 32 percent of young people didn’t realise it is a form of borrowing, similar to a credit card.

A lack of regulation for BNPL means consumers who feel they have been unfairly charged or treated cannot seek help and redress from the Financial Ombudsman Service.

The research found that only 37 percent of young people are confident they can make repayments.

StepChange spokesman, Simon Trevethick, said: “Our research reveals a worrying crossover between use of BNPL and financial hardship, but also that BNPL use is becoming much more common.

“With living costs stretching household budgets, there’s a concern that people are relying on credit like BNPL to make ends meet, which presents as more of a risk as it’s not regulated in the same way as other types of consumer credit. 

“Younger people who may have less financial experience can be more vulnerable to falling into problem debt after using BNPL – especially as at checkouts it’s not always clear that BNPL is a form of borrowing.

“Regulating the industry is long overdue and we urge the government to follow through on its commitment to do so as soon as possible.”

Neil Kadagathur, the chief executive of Creditspring, said: “The UK is sitting on a ticking BNPL timebomb – millions of young people are unknowingly putting their financial future at risk by piling up BNPL debt.

“There is a huge knowledge gap when it comes to BNPL – this is driven by lenders who continue to offer a lack of transparency, confusing repayment terms and hidden costs.

“Regulation of BNPL is absolutely essential, and can’t come soon enough. Plans to bring the BNPL market to heel have been delayed for far too long, which has led to increased confusion and ultimately punished borrowers.”

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