Nearly 8m Brits wrongly believe you can’t get into debt using ‘Buy Now Pay Later’ (BNPL) services*, prompting fears that shoppers are at increased risk of financial difficulty this Black Friday and in the run-up to Christmas.

According to research from a responsible lender, Creditspring, this confusion is higher among younger generations. Despite 14% of 18-34-year-olds using BNPL in the past – the highest proportion for any age group – and over a third (34%) admitting they use BNPL at least once per month, they have the lowest awareness of the financial risks of using this form of credit.

A third (31%) of 18-34-year-olds believe it is impossible to get into debt as a result of using BNPL, double the figure for the wider UK (15%). They are also twice as likely (14% vs 7%) to not know that they could be hit with late payment fees, whilst 16% were unaware that they could be referred to a debt collector if they miss repayments – again, this is significantly higher than the UK average (10%).

With Black Friday sales approaching, there is concern that BNPL purchases are set to spike which could put shoppers at risk of falling into debt. Last year, PayPal announced a 400% annual increase in BNPL usage during the Black Friday period compared to 2020, and the cost-of-living crisis will only make this option more appealing this year.

The FCA has committed to announcing how it will regulate the BNPL sector, however, this isn’t expected until next Autumn at the earliest. In the meantime, the credit industry needs to ensure that it is protecting borrowers and lending responsibly now, rather than waiting for legislation to be announced.

Given the current financial uncertainty, people may not know what their financial position will look like in a couple of months’ time. As a result, although they may be able to afford BNPL payments currently, they run the risk that they won’t be able to in future – putting them at risk of being hit with late fees.

BNPL providers can charge users interest as well as late fees for missed payments. For example, Clearpay charges a £6 late fee (which can be charged twice on purchases over £24 but capped at 25% of the order’s cost or £36 - whichever is lower). Similarly, Laybuy also charges a £6 late fee but users can be charged up to four times per purchase – totalling £24**.

Neil Kadagathur, Co-Founder and CEO of Creditspring, comments: “BNPL payments are likely to spike this winter as living costs soar and people increasingly turn to credit in this busy shopping period. However, it’s hugely concerning that those most reliant on BNPL are also the ones least aware of the risks it poses.

“If used correctly, BNPL offers more flexibility to UK shoppers. However, like many credit options, these products are offered or promoted in a way that encourages people to use them recklessly. If people use BNPL for multiple purchases at once, in a couple of months’ time the total repayment amounts due can rapidly spiral out of control.

“The BNPL sector is in dire need of regulation. This is coming but could still be another 12 months off. With the cost of living crisis gathering pace, borrowers urgently need support now so lenders have to ensure that they’re educating borrowers over the risk of credit, protecting borrowers from debt and lending more responsibly with stringent affordability checks.”

Creditspring is an FCA-regulated, credit subscription service offering affordable, responsible credit to borrowers. Members pay a fixed membership fee every month to allow them to access two loans per year with clear repayment terms, capped costs and no hidden charges, interest or APRs.

This research accompanies Creditspring’s most recent Financial Stability Tracker which measures the UK’s financial outlook and resilience.

Creditspring’s members also benefit from the platform’s education tools, including its Stability Hub service which offers members a financial health audit and personalised tips to improve their financial situation.

Creditspring has just launched its latest education tool - Spring Score – which provides insight into members’ eligibility for Creditspring products to improve access to financial support tools, such as ‘Step’ credit builder which helps members gradually improve their credit score without running the risk of incurring further debt.