Shoppers are making a time bomb of £3.4 billion Christmas debt
- More consumers than ever are turning to an unregulated form of credit to finance Christmas
- New rules to protect shoppers will not be introduced until 2026
- Experts say delays put consumers at risk of falling into debt for longer
British shoppers are at risk of starting the new year with a debt time bomb after spending a record £3.4 billion over the festive period using the Buy Now, Pay Later (BNPL) credit type.
New figures show that this year more consumers than ever have chosen the unregulated form of credit to finance Christmas.
Despite Labor’s pledge to reform the sector, new rules to protect shoppers will not be introduced until 2026.
Experts say the delay puts consumers at risk of falling into unaffordable debt for another year.
BNPL is a form of credit that allows customers to defer payments or pay for products in installments. Critics say it could trap users in a spiral of debt, claiming the information is not clear enough for customers and affordability checks are only superficial.
Providers also charge fees or interest for late payments.
Time bomb: BNPL is a form of credit that allows customers to defer payments or pay for products in installments
Platforms have welcomed the government’s commitment to new rules that would end years of uncertainty after regulatory plans first emerged in 2021.
BNPL giants such as Swedish company Klarna, which is still planning a long-awaited US listing, and Clear Pay dominate the market in Britain.
Some banks, such as Monzo, and retailers, including Mike Ashley’s Frasers Group, offer their own BNPL services to customers. But despite BNPL’s popularity in Britain, another major player, Laybuy, went bankrupt this year as customers tightened their belts.
According to Adobe forecasts, the amount spent through BNPL in November and December is expected to increase 8.3 percent year-over-year.
And separate figures have shown that one in 12 adults in Britain – or four million people – will be reliant on credit over the Christmas period. About 38 percent of those will use BNPL, which equates to more than 1.5 million shoppers.
That’s an increase of two percentage points compared to 2023, when 36 percent or 1.4 million borrowers used BNPL products during the festive season, according to debt relief organization StepChange.
And women are especially at risk: 42 percent of female borrowers rely on the loan, compared to 32 percent of men.
The splurge comes despite retail sales taking a dip during the holiday season. ‘Super Saturday’, the last Saturday before Christmas Day, saw a disappointing 0.9 percent increase in shoppers compared to 2023.
Boxing Day, which traditionally saw people head to the shops in search of post-Christmas bargains, also failed to provide a much-needed boost to struggling retailers.
According to MRI Software, retail activity on the morning of December 26 fell by almost 9 percent compared to last year, with high streets experiencing the sharpest declines.
Analysts noted that many people used Boxing Day to spend time with their families, eat out or attend sports matches, rather than queuing outside shops to look for bargains.
Simon Trevethick from StepChange said: ‘BNPL services have grown in popularity in recent years, but at this time of year using this type of interest-free credit can of course be even more popular as people see their budgets stretched by Christmas spending.
‘While BNPL can be a useful way to spread the cost of gifts, food and other festive items, consumers risk being hit if refunds become unaffordable in the new year.’
When regulations are introduced, BNPL companies will be regulated by the Financial Conduct Authority.
That means providers must check whether shoppers can afford the repayments before offering a loan.
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