Money Buy now, pay later users face debt trap

Shoppers who take out easy credit to fund their online purchases are struggling to manage multiple debts and have turned to credit cards to bail themselves out, writes Adam Williams

Young shoppers are turning to credit cards to escape mounting “buy now, pay later” debts as a British bank becomes the first to speak out about the emerging crisis.

One in every 25 credit card transactions made by Zopa’s young customers is used to pay off buy now, pay later debts, Telegraph Money can disclose. MPs and campaigners have called for new rules to regulate the sector to be fast- tracked to help shoppers avoid taking on potentially catastrophic debt.

Online shopping has boomed in the year since Britain was first locked down. Buy now, pay later has become the preferred way to pay for many people, as it allows users to go on online shopping sprees without paying a penny up front. Interest-free debts are instead repaid over weeks or months.

Figures published by Zopa, a top 10 credit card provider, show 4pc of all credit card transactions among its customers aged 18 to 24 are being used to pay down this type of loan.

Zopa said there was a “worrying lack of awareness” of buy now, pay later debts among young people. A poll conducted by Censuswide found 30pc of 18-24-year olds using the schemes admitted they were unaware how much they owed to various providers. This is equivalent to 800,000 people, the research said.

Young people are the most frequent users of buy now, pay later. The Woolard Review, which recommended the sector be regulated for the first time, found that a quarter of all customers were aged between 18 and 24. repayments continued into the new year. “It’s convenient, but it’s easy to fall behind with repayments,” she said. “I won’t be using it again.”

An emerging problem is the ease with which customers can build up debts across several providers. A lack of industry reporting means you can max out an account with one buy now, pay later provider and then move to another. Stella Creasy, a Labour MP, said: “There is a ticking time-bomb of unsustainable debt accrued during the pandemic, as consumers juggle buy now, pay later with borrowing on credit cards and loans to keep afloat.”

Ms Creasy called for legislation regulating the sector to be brought forward. “Every month the Government fails to regulate these companies [the] problems are worsening – these figures are the latest evidence that protecting consumers from the risks associated with the likes of Klarna, Clearpay and Laybuy should be a national priority,” she said.

Providers said interest-free schemes allowed users to spread payments without using a credit card. Alex Marsh of

Klarna UK said card firms, including Zopa, charged interest of up to 34.9pc. He said Klarna users saved £ 76m in interest last year, compared with using credit cards. Mr Marsh said Klarna’s terms and were transparent and users received regular repayment reminders.

Clearpay said it encouraged responsible spending and, unlike Zopa, did not charge interest. Laybuy said it had clear terms and conditions to help customers budget and was the only buy now, pay later firm to perform a “hard” credit check to ensure customer suitability.

‘It’s convenient, but it’s easy to fall behind with repayments’