One in four young people who have used a ‘buy now, pay later’ platform in the past year are now struggling to pay for food, rent and essential bills as a result of repayments.
The report by Citizens Advice found half of 18-34-year-olds who used the payment option did so without realising and one in three regret it.
Others say they are being chased by debt collectors despite not realising they were taking out loans.
Online shopper Sharonjit said she’s been inundated with calls from debt collectors in the past year, despite trying to cancel her online order.
The 32-year-old used a buy now, pay later’ firm to pay for her new clothes in instalments.
“I’ve been barraged with calls, emails and letters from a debt collector – all for buying some clothes online,” she said.
She didn’t receive the goods and so cancelled her payment to the firm while she waited for the issue to be resolved by the retailer.
She said: “The whole thing has been so stressful. I’m constantly on edge. I’ve just been barraged with calls, emails and letters from a debt collector – all for buying some clothes online.
“The firm said they were referring me on to someone and I had no idea it was a debt collector. I had no idea Buy Now Pay Later could impact my credit score.”
Sharanjit said it felt like “as soon as something went wrong, they washed their hands of me”.
Buy now, pay later is often advertised at online checkouts as an easy way of splitting or delaying payments on items such as clothing or electronics, with incentives like it being ‘interest-free’.
But Citizens Advice warned it can be a slippery slope into debt for many people.
Overall, 27% of UK adults have used these firms in the last 12 months, rising to 37% of disabled people and 45% of people with a mental health problem.
The average person was repaying £63 a month.
However, 5.7million who’ve used it in the last year told the charity they didn’t think it was ‘proper borrowing’ and 6million didn’t fully understand what they were signing up for.
Of those struggling, a quarter said they regret paying using these platforms, with the most common reasons being spending more than they can afford, and paying more than they expected.
And repayments are not the only problem with three in 10 buy now, pay later users saying they’ve been charged a fee they didn’t expect.
Citizens Advice said the websites should offer clearer terms and conditions at the checkout to ensure shoppers aren’t encouraged to spend more than they can afford, and improve affordability checks.
Chief executive of Citizens Advice, Alistair Cromwell, said: “Buy now, pay later borrowing can be like quicksand – easy to unwittingly slip into and much more difficult to get out of.
“It shouldn’t be possible for people to sign up for credit without realising, and the fact this is happening so often signals that a drastic overhaul is needed.“
Sarah Coles, finance analyst at Hargreaves Lansdown, said customers need to be aware of the “hidden dangers”.
“The fact this borrowing is interest-free makes it feel safer, but there are inherent dangers. Fewer checks on borrowers mean a bigger risk people are taking on debts they won’t be able to manage. If shoppers can’t afford to make payments, they may have to make late payment fees, and will start carrying arrears.”
Several big – and smaller – names now operate in the fast-growing BNPL market, including Klarna, Clearpay, and Laybuy. PayPal launched a BNPL service last year.
However, firms stress that not all operate to the same standards.
Alex Marsh, UK head of the one of the most popular BNPL firms, Klarna, said: “There is now a variety of buy now pay later providers in the market and the findings in this report do not represent the experiences of the more than 12 million consumers who choose to use Klarna’s interest free, fee-free services each year.
“We make it crystal clear for our consumers at check out that this is a credit product, we perform a credit check each time they use our service, and we are available 24/7 to support the small number of customers who unfortunately find themselves in difficulty.”
Andy Harding, UK managing director of rival Openpay, said: “Openpay has never run a marketing campaign specifically targeting young people and Openpay is never the default payment option at checkout – a practice that can lead to people using BNPL services unwittingly.”