Debt concerns as UK public sector workers turn to buy now, pay later

theguardian.com:

Experts have raised concerns over cash-strapped public sector workers turning to controversial buy now, pay later loans after being turned down by mainstream lenders.

Analysis by the University of Edinburgh found that one in 10 public sector and NHS staff, who were initially rejected for a more conventional loan on the basis that they could not afford to repay it, went on to secure credit from buy now, pay later (BNPL) firms last year.

Researchers also found that the overall use of BNPL products among public sector employees had “increased significantly” relative to other credit and loans, and that it was starting to displace other non-traditional lenders such as those offering high-interest payday loans.

Prof Tina Harrison, of the University of Edinburgh’s business school, warned that the rising use of BNPL – which is still unregulated in the UK – increased the risk of public sector workers falling behind on their payments.

“The increase in the use of BNPL, especially among individuals with very low financial resilience, is extremely worrying,” she said. “Left unchecked, BNPL has the potential to very quickly lead to an unmanageable debt burden.”

BNPL firms such as Klarna, Clearpay and Laybuy enjoyed rapid growth during the pandemic as online shopping boomed. While shoppers are not usually charged interest on their purchases, they are still at risk of overextending themselves with debt, and are not entitled to forbearance or compensation if things go wrong since such firms are not yet regulated in the UK.

Research released by Barclays Bank and the debt charity Stepchange in June found that almost a third of BNPL borrowers said their loans had become unmanageable and had pushed them into problem debt. Shoppers who used such