Citizens Advice has warned of a looming debt crisis fuelled by the number of young people using credit cards to pay their buy-now, pay-later (BNPL) bills.
New research from the consumer charity found that 51 per cent of 18-34 year olds borrowed money to pay off their BNPL debt. This compares with 39 per cent of 35-54 year olds and 24 per cent of over-55s.
26 per cent of these consumers used credit cards to pay their BNPL bills, with others opting to use their overdrafts, loans and payday loans, as well as borrowing from family and friends.
Citizens Advice warned that using credit to repay debts could lead to a spiralling debt crisis, with young people particularly at risk.
This view was echoed by personal finance experts, who said that BNPL regulation “can’t come soon enough.”
“Taking out a loan to pay off buy now pay later purchases could lead to a perpetual cycle of debt that is difficult to escape from,” said Myron Jobson, senior personal finance analyst at interactive investor.
“It also completely mitigates the main draw of BNPL arrangements in that they allow consumers to delay or split the cost of purchase without paying interest. Interest applied to loans means the debt would swell the longer it takes to pay off.”
Jobson warned that BNPL schemes can be a “banana skin” for those embroiled in debt, as many BNPL providers don’t conduct thorough credit checks to ensure that borrowers can afford to make repayments. This is set to become a more dangerous issue as the cost of living crisis escalates.
Earlier this year, Hargreaves Lansdown research found that six per cent of Brits have already used BNPL solutions like Klarna to pay for groceries, and another 12 per cent would consider doing this in the future.
“The escalating cost of living crisis risks people turning to BNPL schemes to help tide them over,” added Jobson.
“You can now buy essential groceries through some BNPL services which is particularly disconcerting. It is never a good idea to borrow to pay for essentials – it is a shortcut to unmanageable debt.
“Regulation of the BNPL industry can’t come soon enough.”
Former peer-to-peer lenders Funding Circle and Zopa have recently entered the BNPL space, using advanced credit-checking technology to ensure that they only lend to creditworthy borrowers, in line with upcoming regulation.
Read more: Consumer lending outpaced by BNPL