Urgent warning for buy now, pay later shoppers this Christmas

IN the run up to Christmas, charities and consumer experts are warning shoppers about the hidden risks of ‘buy now, pay later’ schemes.

This payment option can be a handy way to spread the cost of Christmas, interest-free and has grown in popularity year-on-year. But there is growing evidence that people are taking on debt that they can’t afford.

For instance, Citizens Advice research shows that around one in three UK adults has used Buy Now Pay Later (BNPL), which works out as around 20 million people.

However, the charity’s research reveals that those unable to cover the costs of their essentials – like groceries and bills – are more likely to have been a regular user of BNPL.

Missing BNPL repayments can have severe consequences including fees, spiralling debt, bailiffs, and even County Court Judgments and bankruptcy in extreme cases.

Even just one missed repayment could lead to a black mark on your credit rating, which could make it harder to get credit in the future, or mean that you get more expensive interest rates for mortgages, loans and credit cards.

Citizens Advice’s research found that one in five BNPL users (approximately 3million Brits) missed or made a late payment in 2023, with one in ten of those visited by bailiffs as a result.

Almost a third of BNPL shoppers borrowed money to make existing repayments, meaning their initial shopping is only leading to spiralling amounts of debt.

Richard Lane, chief client officer at debt charity StepChange, said: “While this type of credit is interest free, it’s currently unregulated, and does not have the same standard of consumer protection like credit cards or personal loans do.

“This means affordability checks are not consistent across BNPL providers.

“With BNPL often heavily marketed to customers at online checkouts, it doesn’t always give people enough time to consider whether the repayments will be affordable, or fully understand the consequences of missed payments.”

Chris Davis, CEO of debt advice company MoneyPlus Group, added: “[We’re seeing] an increase in customers who need advice after over-using quick ‘buy-now-pay-later’ forms of credit.

“The accumulation of these smaller debts, alongside credit cards, loans and other means available to help make money stretch further, is causing real problems for an ever-increasing number of people.

“We are now seeing many instances where customers have multiple loans with buy-now-pay-later providers, totalling several hundred pounds, and growing.

“This may not seem a huge amount but with total debts averaging £15,000 for customers who use these loans, it’s symptomatic of an issue where people are really struggling to pay for basic necessities and leaning on smaller loans to help supplement their problem debts.”

Changing the rules

After campaigns from charity experts, the government has announced a consultation into BNPL schemes, with a view to regulating the loans properly.

The new rules will mean that Buy-Now, Pay-Later companies must check that shoppers are able to afford repayments before offering a loan, which the government says will help to prevent people building up unmanageable debt.

Companies will also need to provide clear, simple and accessible information about loan agreements in advance so that shoppers can make fully informed decisions and understand the risks associated with late repayments.

Buy-Now, Pay-Later users will be given stronger rights if issues arise with products they purchase, making it quicker and easier to get redress.

This includes applying Section 75 of the Consumer Credit Act, which lets you claim a refund from a lender, and access the Financial Ombudsman Service to make complaints.

StepChange’s Lane said: “The Government has now confirmed that the BNPL industry will be regulated in 2026. In the meantime, it’s important to be mindful when using this type of credit, particularly in the lead up to the festive season.

“If you’re using BNPL for gifts or food, always think ahead to whether those debt repayments will be affordable when the New Year arrives.

“It’s unlikely your loved ones would want to you end up with a debt hangover in January as a result of your generosity.”

Rocio Concha, Which? director of policy and advocacy, added: “Our research found that many BNPL customers do not realise they are taking on debt or consider the prospect of missing payments, which can result in uncapped fees, so clearer information about the risks involved as well as the use of affordability checks and
options for redress would be a win for consumers.”

If you are struggling to cover essentials or feel like debt is becoming unmanageable, support is available. You can get free and impartial debt advice from a charity like StepChange.

National Debtline also provides free, independent, expert advice. You can call for free on 0808 808 4000 or via www.nationaldebtline.org

Alternatives to buy now, pay later schemes

Buy now, pay later schemes can still be a good option for some shoppers in the right circumstances.

Specifically, if you know you can comfortably afford repayments, even if your circumstances change (for instance if you lose your job or are too sick to work), then they allow you to spread the cost of big purchases without paying any interest.

However, missed payments can lead to uncapped fees and even bailiffs being sent to your house, so it’s important to only use credit when you can afford it.

Another way to access interest-free credit is with a 0% credit card.

This has similar risks to BNPL in that missed repayments can damage your credit score.

There may also be fees and charges involved.

However, one advantage is that these credit cards are already regulated, which means it’s simpler to understand the penalties if you miss a payment, and affordability checks should be carried out before you are approved.

You’re also covered by Section 75 of the Consumer Credit Act, which means you can get a refund if there’s something wrong with your purchase.

You could also check whether your bank offers an interest-free overdraft, which many do.

This could give an extra buffer to cover costs without facing any interest, but you must make sure that you don’t go over the allowance and that you have a plan to get back in the black.

Ultimately, it’s best not to get into debt over Christmas at all.

One exception might be if you have savings that are earning interest, which you can use to pay off a 0% finance option.

This means that the money is still earning interest in the savings
account, but you’re not paying any interest to the bank on your credit.

Otherwise, you might be better off looking for ways to boost your income in the run up to Christmas. For instance, lots of banks will offer you up to £200 to move your current account across, which can provide a quick cash injection.

Lloyds currently offers £200, NatWest is offering £180 plus cash back, First Direct and Nationwide offer £175, Santander offers £150+ cashback, and the co-op bank offers £75 to switch and £75 if you stay.

Make sure you read the fine print, as most have rules about the number of direct debits you need and whether you’ve been a
customer before.

You should also make sure that you’re receiving all the benefits that you’re eligible for, Turn2Us has a calculator that can help you check what you might be entitled to.

There may also be grants available to help you manage the cost-of-living crisis, which could help boost your finances.

These are usually aimed for people in certain professions, and can be worth thousands of pounds.

Find out more in our guide.