Experts have raised concerns that cash-strapped public sector workers are turning to controversial purchases now, repaying loans later after being turned down by traditional lenders.
An analysis by the University of Edinburgh found that one in 10 public sector and NHS staff, initially turned down for a more conventional loan on the grounds that they could not afford to repay it, went on to got a buy now, pay later (BPL) credit last year.
The researchers also found that the overall use of BNPL products among public sector employees had “significantly increased” compared to other credits and loans, and was beginning to supplant other non-traditional lenders such as those offering high interest payday loans.
Professor Tina Harrison, from the University of Edinburgh’s business school, warned that the growing use of BNPL – which is still unregulated in the UK – increases the risk that workers in the sector public are in arrears.
“The increase in the use of BNPL, particularly among those with very low financial resilience, is extremely concerning,” she said. “If left unchecked, BNPL has the potential to lead to an unmanageable debt burden very quickly.”
BNPL companies such as Klarna, Clearpay and Laybuy have grown rapidly during the pandemic as online shopping has exploded. Although buyers generally do not pay interest on their purchases, they are still at risk of becoming over-indebted and are not entitled to forbearance or compensation if things go wrong, as these companies are not yet regulated in the Kingdom. -United.
A study published by Barclays Bank and the charity Stepchange in June found that almost a third of BNPL borrowers said their loans had become unmanageable and had pushed them into debt. Shoppers who used these services refunded an average of 4.8 purchases, nearly double February’s 2.6 purchases.
The Edinburgh research analyzed the transactions of 104,661 NHS and public sector workers who applied for a loan from non-profit lender Salad Money but were rejected on the grounds that they were unable to repay .
Salad Money, which commissioned the survey, provides loans exclusively to public sector workers. Analysis of 174 million anonymized bank transactions by public sector workers found that 54% had experienced the return of direct debits – a key indicator of financial hardship.
The head of Responsible Finance – an industry body that oversees the UK’s not-for-profit lenders, known as Community Development Finance Institutions (CDFIs) – said it was “shocking” to see the BNPL approval rate among previous rejected loan applicants.
“How can it make sense that if a responsible lender says ‘no, this loan is not affordable,’ an under-regulated, well-funded tech darling can say yes?” said Theodora Hadjimichael.
The findings were released as part of a report showing many key workers would struggle to pay an unexpected £100 mid-month bill as staff whose transactions were analyzed had, on average, no only £79 in their account at that time. midpoint.
It also found that BNPL users spent more relative to their income and tended to have higher overdrafts, while a significant minority were heavily in debt. Although it is not possible to blame BNPL for these trends, the analysis revealed that its use tended to increase over time.