UK survey – 43% have “struggled” to pay back a BNPL purchase. Mental health impact of debt: anxiety for 41%, sleep problems for 37% and depression for 28%.

an article written by Gemma Lockwood, Head of Social & Content at OpenMoney

We know December is a tricky month for many when it comes to money, so we did some research to understand how people plan to pay for Christmas and check whether there’s been a rise in people turning to buy now pay later schemes since our research last year.

Here are some of our key findings:

. More than a half of Brits are worried how they’ll afford presents this Christmas, a 3% rise on last year.

. Many people are „living beyond their means” with 89% feeling “encouraged” to follow an unaffordable lifestyle and 43% struggling to clear debts.

. When asked how they would pay for Christmas, 37% said credit cards, 23% store cards, and 22% BNPL schemes, with only 22% using savings.

. 57% admitted to previously using BNPL schemes such as Klarna or ClearPay, compared to 49% in 2020.

. The main reason why people would opt to use BNPL is not being able to afford to purchase items in one payment (41%) while one-in-five believed they would avoid credit checks, which isn’t necessarily true.

. Using a BNPL scheme had “tempted” 42% to buy something they couldn’t afford, despite a staggering 83% who confessed to concerns about their online spending habits leading to long-term debt.

. More than a quarter (26%) splashed out on laptops, phones or other tech, 19% on clothes, 18% on holidays and 14% on interiors and furnishings for the home proving people are using buy now pay later more and more for those big ticket purchases.

. 43% have “struggled” to pay back a BNPL purchase, with many saying they’d been forced to borrow money from parents or friends, take out a loan or leave rent and bills unpaid to pay off money they owed.

. For others it wasn’t just the impact on their pockets but also to their mental health, with a build-up of debt causing anxiety for 41%, sleep problems for 37% and depression for 28%.

While we can understand it’s tempting to take the opportunity to buy something now and pay for it at a later date, the danger is these schemes can encourage you to buy items you otherwise couldn’t afford, and it’s very easy to start living beyond your means and getting into debt which you struggle to pay off.

This is particularly the case at Christmas as we know many of you feel under pressure to find that perfect gift, but if you buy items you can’t really afford, the consequences can be devastating both to your finances and your mental health.

Now you may be thinking there are no consequences to using a BNPL scheme, especially when some of them advertise that there is no interest and no late payment fees. But, what happens when you can’t pay on time? Well, they’ll ban you from using their services which seems fair, but they also may send debt collectors to your home to recover the outstanding balance.

Because of the way some of these schemes work, companies like Klarna and Clearpay can also make it seem super easy to get approved for credit. That’s because it is – with them. They don’t perform a full credit check, so you could be thousands of pounds in debt to other lenders, and they won’t know. Whilst getting approved for BNPL credit doesn’t harm your credit score upfront, if you struggle to pay, they may report your missed payments to credit reference agencies, which may impact your credit score in the end.

So wherever possible, we would recommend saving up and paying for an item all in one go – it has some amazing benefits not only on your financial health, but on your mental health too (just check out our YOPO campaign for more on this).

However, if there is a time you need to use buy now pay later, just make sure you’re using it moderately and keep a track of what you’ve spent so you know you can meet all of the repayments. As long as you go in with open eyes, you should be able to avoid any of the dark consequences we’ve mentioned.

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