Back Back

‘Technical Recession’ Avoided, But Income Pressures Remain

You may have noticed as you traverse the internet that growing numbers of brands and businesses in a range of different industries are starting to offer buy now, pay later (BNPL) options on purchases.

The likes of Klarna and Clearpay are fast becoming household names, providing retailers like Asos, Marks & Spencer and other big brands with the facility to offer BNPL. 

What’s more, banks such Natwest and Barclays are also now offering this kind of service, as well, while Apple plans to provide Apple Pay users with the opportunity to spread their payments out in the near future.

While this may seem like a solid budgeting solution at the time and a convenient way to spread the cost of goods that you’re keen to have, it’s important to keep on top of your shopping habits and retain financial control.

Part of the problem with BNPL is that it doesn’t feel like you’re borrowing any money. However, it’s important to remember that if you do suddenly run into financial trouble or if something unexpected comes up, it will be treated like any other kind of debt if you’re unable to make the payments.

With the festive season and Christmas fast approaching, BNPL may become increasingly attractive to more and more people, particularly in the face of the cost of living crisis. 

A 2021 survey from Equifax (1) found that 28 per cent of 18 to 35-year-olds bought presents at Christmas using BNPL to help cushion the financial blow. In all, more than a quarter of shoppers in the UK are now regularly using BNPL – and it’s likely that this will increase as time goes on.

Commenting on the findings, chief product and marketing officer Jayadeep Nair said: “[BNPL] can be an incredibly useful budgeting tool and may soon even help those with thin credit files to build up a healthy credit score. 

“However, as useful as BNPL can be, it’s important that shoppers don’t see it as a way to overstretch themselves in the coming weeks. Prices are rising, interest rates are creeping up and, unless wages keep pace, most borrowers will see their finances squeezed over the coming months.”

This was back in 2021 and, of course, we’ve all seen price hikes left, right and centre, rising interest rates and wages failing to keep up with the rate of inflation… which suggests that there may be some – or many – out there suddenly finding themselves struggling to meet their BNPL commitments.

It may feel like BNPL is a good solution when money is tight but payments can mount up and make funds even tighter. Although there’s no interest charged in many cases and lots of companies don’t charge late fees, debts can still start to pile up and this could have a knock-on effect with the rest of your bills.

It’s also important to note that the Financial Conduct Authority has plans in place to regulate the industry either next year or the year after and has already brought in some voluntary changes, such as reporting problem debts. 

While this is a good move because it will help prevent people from getting more into debt, it also means that late or missed payments will go on your credit file – and stay there for up to six years.

If you are struggling with debt as a result of the cost of living challenges you can contact the Fresh Start UK team today.


Money Helper has replaced the Money Advice Service and brings together the support and services of three government-backed financial guidance providers: the Money Advice Service, the Pensions Advisory Service and Pension Wise.