As the festive season approaches, new data reveals that a growing number of UK consumers are relying on Buy Now, Pay Later (BNPL) services to manage their holiday spending. While these payment options offer flexibility, they also bring significant risks, with many shoppers facing a ‘debt hangover’ in the New Year.
According to recent research by Pepper Money, 50% of UK adults, or approximately 26.4 million people, are using BNPL services in 2024, a sharp increase from 36% at the start of 2023.
As UK consumers increasingly turn to BNPL services, it’s clear that the demand for flexible payment options is on the rise.
A surge in Google searches for “Buy Now, Pay Later” in recent months, with searches reaching 75,000, highlights the growing interest in these services, particularly during high-spend periods such as Black Friday and Christmas.
While BNPL can be a convenient solution for those looking to spread the cost of their festive shopping, the risks associated with over-spending are significant.
Nearly half of shoppers (44%) plan to use BNPL for their purchases this holiday season, but the flexibility of these services can lead to multiple active debts that may be difficult to manage.
Over half (57%) of UK consumers are seeing less disposable income this year, prompting many to turn to BNPL services and credit cards to fund additional holiday expenses.
However, these options come with inherent risks. BNPL services often lead to multiple instalment payments with varying due dates, increasing the risk of missed payments and additional fees.
In fact, 9% of BNPL users admitted that they had been pushed into debt due to over-borrowing.
Credit cards offer similar flexibility but at a high cost. With interest rates often reaching 24.57%, even a small holiday debt can quickly escalate if not paid off in full.
This can create a financial burden in the New Year, leaving many struggling to manage their finances.
26% of UK adults plan to borrow or use credit to fund their Christmas expenses this year. While these financial tools may seem manageable at first, the risk of accumulating unmanageable debt is high.
Pepper Money’s study revealed that 41% of UK households have seen their debt levels rise over the past year, highlighting the growing financial strain faced by consumers.
“The temptation to rely on BNPL services and credit cards during the festive season can be overwhelming,” said Ryan McGrath, Director of Secured Loans at Pepper Money. “While these options offer flexibility, they can quickly lead to financial strain if not used cautiously. Many consumers don’t realise that BNPL platforms encourage spending across multiple purchases, resulting in a range of instalment payments with varying due dates.”
An expert’s tips on how to avoid debt using BNPL
Pepper Money offers some practical advice for consumers looking to use BNPL services responsibly this holiday season:
- Set a spending limit: It’s easy to overspend with BNPL services. Set a clear budget for Christmas shopping to avoid excessive borrowing.
- Track payment due dates: Each BNPL provider has different payment schedules. Keep track of due dates and set reminders to avoid missed payments and late fees.
- Use BNPL selectively: Reserve BNPL for essential or high-priority items, and pay cash for smaller purchases to avoid accumulating debt.
- Pay down balances early: If possible, pay off BNPL balances early to prevent debt from lingering into the New Year.
- Know the fees and penalties: Many BNPL services offer interest-free periods, but late fees and penalties can add up quickly. Be aware of the fine print to avoid unexpected costs.
- Limit non-essential purchases: Avoid using BNPL for non-essential items like clothes and gadgets, as these can quickly add to your debt load.
- Consider saving instead: If possible, save up for big purchases rather than relying on BNPL to avoid debt altogether.
How to avoid financial strain going into the New Year
Pepper Money’s research highlights how even small increases in monthly bills can significantly impact household finances, with 73% of consumers stating that a £100 rise in bills is a substantial burden.
During the festive season, shoppers are at risk of taking on multiple debts across various platforms, leading to financial strain in the New Year.
“The average credit card interest rate is now at 24.57%, meaning even a small holiday debt can balloon if carried into the New Year,” McGrath added. “This can create a challenging debt cycle, with missed payments often leading to additional fees and higher costs.”