Buy now, pay later users unaware of payment option consequences, Barclays research finds

Buy now, pay later programs are growing in popularity, but regulators are increasingly concerned. (iStock)

Buy Now Pay Later (BNPL), which allows consumers to take an item home and split payment into smaller, more financially manageable installments, is gaining popularity. But a December 2021 Barclays study claims that many who use it do not fully understand its potential consequences.

According to the study, 36% of adults who used BNPL did not fully understand the consequences of not making payments on time, the UK-based survey showed. 39% of users admitted that they did not fully understand how the payment product actually works.

“This research shows that more needs to be done to educate consumers using unregulated ‘buy now, pay later’ products,” said Antony Stephen, CEO of Barclays Partner Finance. “Too many people take out these loans without realizing the impact it could have on their finances and with festive shopping in full swing, it’s important buyers don’t risk signing deals, they may find it difficult to repay affordably in the future.”

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CFPB LAUNCHES INVESTIGATION INTO BUY NOW, PAY LATER CREDIT PROGRAMS

Consumers using BNPL may not be able to afford it

Many BNPL providers do not carry out thorough checks to see if a consumer can afford to make their payments, and 52% of consumers are unaware of this, according to the Barclays survey. The survey indicated that 36% of consumers said they had used BNPL to buy more than they could really afford.

Additionally, 25% of respondents said they found it difficult to keep track of their spending after taking out loans from multiple BNPL providers, and a further 24% said it even caused them to miss a payment.

As the overall cost of daily living increases, consumers may continue to use BNPL programs, as 35% of consumers in the study said they were more likely to use it.

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BUY NOW, PAY LATER LOANS WILL BE FORMALLY INCLUDED IN EQUIFAX CREDIT REPORTS

The CFPB intervenes to investigate the risks of BNPL

Although the Barclays survey was conducted in the UK, similar results are being assessed in the US, and regulators are looking to BNPL companies.

In December, the Consumer Financial Protection Bureau (CFPB) opened an investigation to review the risks of BNPL programs, sending orders to companies such as Affirm, Afterpay, Klarna, Paypal and Zip to collect risk and benefit information.

The office said it was concerned about growing debt, product regulation and data collection. The CFPB plans to make its findings public after weighing the risks.

“To protect consumers from taking on more debt than they can comfortably afford, and to ensure there are minimum standards across the industry, we believe regulation should ensure that all providers of BNPL are required to undertake appropriate accessibility assessments, in line with those in place for other regulated consumer credit products,” said Stephen.

A personal loan can be a useful alternative to BNPL if you need cash for large purchases. When it comes to shopping for personal loans, Credible can do the heavy lifting for you. With just the click of a button, you can view multiple lenders, rates, and terms in one place.

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