After it was revealed UK consumers racked up £3.3bn in buy now, pay later (BNPL) debts over Christmas 2021, a study by Credit Karma has found a growing debt bubble amongst customers.
With an extra £1bn spent on BNPL purchases last Christmas, up to 42% of consumers are yet to repay their debts in full.
The growing lack of repayments in fuelling a debt bubble within the market, with 11% of users admitting they have missed repayments.
This inability to keep up with payments could potentially pose a risk to the credit scores of consumers. The study found that nearly half of those struggling to manage BNPL debt have already witnessed a drop in their credit ratings – an issue that can make securing personal loans, credit cards and mortgages less accessible and more expensive. Up to one in three consumers – 31% – claimed they used BNPL services over Christmas.
Credit Karma general manager Ziad El Baba said, “Spreading out payments can be helpful in certain circumstances, however it becomes problematic when consumers borrow more than they’re able to comfortably pay back. Plus, most buy now, pay later companies don’t report to the credit bureaus, which leaves many buy-now, pay-later customers at a disadvantage.
“This is especially true for responsible borrowers who won’t likely see their credit scores improve as a result of making regular, on time repayments, as they would with other forms of borrowing.”
Recent research by payments processor Mollie found payments made by BNPL methods more than doubled from 2019 to 2020, with Black Friday and Cyber Monday causing spikes in usage.
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