Britons are increasingly dipping into their overdraft and using buy now, pay later (BNPL) schemes in order to cope with the rising cost of living, new research has revealed.
Overdraft usage among UK bank account holders has increased by 7.1 per cent since August 2021, according to new data from credit marketplace ClearScore, which has assessed 20,000 UK bank accounts using open banking technology.
ClearScore’s open banking figures also show the impact of rising inflation on household expenditure.
In the red: Overdraft usage among UK bank account holders has increased by 7.1% since August 2021, as household finances continue to be squeezed
It found that essential spending – including groceries, bills, fuel and rent – has increased by 25 per cent since August last year, with wage growth lagging behind over the same period at just 10 per cent.
As a result, essential spend as a proportion of income has risen by 6 per cent as prices rise and income fails to keep up.
More than half of UK adults feel concerned about their financial situation, with many making changes to cut back where they can, according to separate consumer research by ClearScore.
It found that many people were planning ways to navigate the coming months, including consolidating existing debt and dipping into savings to pay for day-to-day expenses.
However, worryingly it found that one in four Britons said they were likely to continue relying more on their overdrafts in the coming six months.
Buy now, pay later use spikes
There is also evidence that Britons may be becoming more reliant on buy now, pay later services to maintain their lifestyles.
More than two-thirds of BNPL shoppers are using these services more than ever as a result of rising prices, according to a separate report by the price comparison and financial guidance platform, Forbes Advisor.
BNPL lets shoppers stagger payments for goods, often with no interest or charges unless they fail to pay the money back on time. Popular providers include Klarna, Clearpay and Afterpay.
Shopping fix: Almost two in five of those aged 18-24 claim to be using BNPL to keep up with fashion trends
The flexible payment method has soared in popularity over recent years, with more than one quarter of Britons now using BNPL, according to the study.
The study found that BNPL shoppers aged 18-24 were the most reliant on these payment methods, with four in five increasing their spend in the last six months.
Those aged 25-34 have also upped their spending through these services significantly, with three quarters using them more regularly as everyday prices rocket upwards.
|Age||Average BNPL debt monthly|
|18 to 24||£207.84|
|25 to 34||£175.12|
|35 to 44||£152.45|
|45 to 54||£159.78|
|55 to 64||£154.12|
|65 and over||£97.77|
Worryingly, the study also uncovered that people were taking advantage of these services to spend beyond their means.
Almost one third were using BNPL to make payments outside their budget, and over one quarter were using these schemes as an alternative to a credit card after being rejected.
The research also found that BNPL shoppers were regularly failing to pay back their debt within a couple months of their purchases – which usually means they will incur charges and could see their details passed to debt collectors.
Problem debt: Young people have been the key target market consistently, with adverts encouraging users to spend on popular fashion and lifestyle brands
Almost one quarter of users were missing payments monthly and more than one in four were skipping them at least every few months.
Perhaps unsurprisingly, young people are struggling to keep up with repayments the most.
Almost two in five people aged 18 to 24 said they were missing out on payments monthly and over one quarter were skipping them at least every few months.
So how much is being spent?
On average, Britons that use BNPL are falling into an additional £160 worth of debt a month as a result, according to the Forbes Advisor report.
Those aged 18-24 are the biggest spenders, with spending reaching over £200 a month on average.
Electronics are the most common items bought using BNPL services, with almost a third of users making a purchase in this way over the last six months.
Nearly a quarter are purchasing luxury items such as designer clothing, jewellery and handbags.
High street fashion, beauty and lifestyle brands are also popular spending categories among these payment methods. More than one in six have also used BNPL to purchase takeaways.
|Categories||% respondents purchasing goods in each category|
|Electronics such as TVs, computers, mobile phones||31%|
|Clothes /Shoes / Accessories (mid-range retailers)||28%|
|Clothes/ Shoes / Accessories (luxury retailers)||24%|
|Home improvement, appliances||24%|
|Health / Wellness products||21%|
|Perfumes / Aftershaves||17%|
Laura Howard, a money expert from Forbes Advisor, says there is a need to highlight the potential dangers of BNPL, especially for those who are already stretched financially or may not have a great deal of financial experience.
‘The attraction of BNPL is obvious,’ says Howard. ‘It brings products within reach for people who cannot afford the ticket price upfront, and who perhaps do not have access to other forms of credit.
‘But the lure of being able to buy something immediately should not tempt people into a financial arrangement that they cannot manage or afford.
‘If you’re late with your payments there’s the prospect of fees, and you could end up staining your credit file, making it harder to secure financial products at a later date.
‘Using credit services such as credit cards and personal loans means meeting repayment schedules or facing penalties that can be costly and far-reaching.
‘People need to keep this in mind when deciding whether to use a BNPL scheme or, indeed, any other credit product.’
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