Shoppers ring up £3.4bn Christmas debt time-bomb

British shoppers risk starting the New Year with a debt time-bomb after spending a record £3.4 billion using the buy now, pay later (BNPL) type of credit over the festive period.

New figures showed that more consumers than ever have turned to the unregulated form of credit to fund Christmas this year.

Despite Labour’s vow to overhaul the sector, new rules to protect shoppers will not be brought in until at least 2026. 

Experts say that the delay will leave consumers at risk of falling into unaffordable debt for a further year.

BNPL is a form of credit that allows shoppers to defer payments or pay for products in instalments. Critics say that it can trap users in a spiral of debt, and claim that information is not clear enough for customers and that affordability checks are only surface-level.

Providers also charge fees or interest on late payments.

Time-bomb: BNPL is a form of credit that allows shoppers to defer payments or pay for products in instalments

Platforms have welcomed the Government’s commitment to new rules that would end years of uncertainty after plans for regulation were first floated in 2021.

BNPL giants such as Swedish firm Klarna, which is still planning a long-awaited US listing, and Clear Pay dominate the market in the UK.

Some banks, such as Monzo, and retailers including Mike Ashley’s Frasers Group offer their own BNPL services to customers. But despite the popularity of BNPL in the UK, another big player, Laybuy, collapsed into administration this year as customers tightened their belts.

The amount spent through BNPL in November and December is expected to have climbed by 8.3 per cent year-on-year, according to forecasts by Adobe.

And separate figures have shown that one in 12 UK adults – or 4 million people – will rely on credit over the Christmas period. Around 38 per cent of those will use BNPL, amounting to more than 1.5 million shoppers.

That is a two percentage-point rise compared with 2023, when 36 per cent or 1.4 million borrowers used BNPL products over the festive period, according to debt charity StepChange.

And women are particularly at risk, with 42 per cent of female borrowers relying on the lending compared with 32 per cent of men.

The splurge comes despite retail sales over the festive period taking a tumble. ‘Super Saturday’, the final Saturday before Christmas Day, saw a disappointing 0.9 per cent rise in shopper numbers compared with 2023.

Boxing Day, when people traditionally hit stores in search of post-Christmas bargains, also failed to provide a much-needed uplift for struggling retailers.

Shopping activity on the morning of December 26 was down by nearly 9 per cent compared with last year, with high streets experiencing the sharpest declines, according to MRI Software.

Analysts noted that rather than queuing outside of shops to hunt for bargains, many people were instead using Boxing Day to spend time with their families, dining out or attending sports matches.

Simon Trevethick at StepChange said: ‘BNPL services have grown in popularity over the last few years, but of course at this time of year using this type of interest-free credit can be even more popular as people see their budget stretched by Christmas expenses.

‘While BNPL can be a useful way to spread the cost of gifts, food and other festive items, consumers can be at risk of falling into difficulty if the repayments become unaffordable in the New Year.’

When regulation is introduced, BNPL firms will be regulated by the Financial Conduct Authority.

That will mean providers will have to check that shoppers can afford the repayments before offering a loan.