The UK is facing a spiralling debt crisis as the number of ‘buy-now-pay later’ loans quadruples.

The UK government is being urged by consumers to act against the unregulated “buy now, Pay Later” credit. This has led to a rise in online spending of up to £1.7bn per month.

Many people use deferred payment to purchase household necessities, warn debt advisers. Consumers who miss payments risk having their cases turned over to debt collection agencies.

The market for “buy now and pay later” has quadrupled since 2020, and it is expected that this year’s total will reach a new record of £30bn. Groups of campaigners are calling for urgent action to regulate this sector.

Morgan Wild, interim policy director at Citizens Advice said: “Three year after the government promised to regulate the ‘buy now pay later’ system as a matter of urgency, this much needed regulation has been pushed into the back of the queue.

In that time, the use of these services has risen dramatically, and as a result, our advisers on the frontlines are seeing three times more people in need of help repaying their debts. They need emergency assistance, such as food bank vouchers. This is alarming because lenders fail to protect their customers from unmanageable debt.

Adobe Digital Insights figures, which track hundreds of millions of transactions every month, show that “buy now and pay later” deals account for more than £1 of every £7 online spent in the first quarter of 2024.

According to data provided by the Observer, the total online spending in 2023 for the deals is estimated at £16,7bn. Monthly expenditures range between £1,09bn to £1,75bn. In the same year, an estimated £9bn more was spent at physical stores that offered “buy now and pay later” options.

Deferring payments is a choice that has existed for over ten years, but it became even more popular when the pandemic hit because people were more reliant on online shopping and credit demand was high.

Christopher Woolard (former interim chief executive of the Financial Conduct Authority, FCA) reviewed the deals and found they were “meaningful alternatives” to payday loan, but also posed a significant potential harm for consumers.

Woolard, in his report for 2021, recommended that the legislation be amended “as quickly as possible” so that all products of this nature are regulated by FCA.

In January 2022, The Observer reported that shoppers are being encouraged to “buy now and pay later” when doing their grocery shopping to help them cope with “difficult times”. Credit was promoted for items like salmon fillets and pet food. The “first payment” was £1.75. A 24-can pack of R Whites Lemonade was advertised.

The Treasury published draft legislation in February 2023 to regulate the industry, but these proposals haven’t been implemented. Now, the government is under pressure to act.

Citizens Advice published a report in November that revealed 35% of those who use the “buy now and pay later” deal regularly have paid for groceries using this method. The report also revealed that one fifth of those who regularly use “buy now, pay later” deals have missed or been late on a payment.

Labour MP Stella Creasy has called for regulation of the sector. She said: “An year after the government’s “buy now and pay later” consultation closed and four years since Parliament and the regulator decided that action was required, it is evident that the delay (is being used) to push more people into unsustainable loans.

This unsecured debt shouldn’t have grown as much, especially when people are already struggling to pay for the cost of living.

Joe Cox is a senior policy officer with the campaign group Debt Justice. He said that people who have no other option but to buy now and pay later because they are in financial trouble can be dragged into a debt spiral from which it may take them years to recover. These borrowers should be afforded the same protections as other consumers.

Deferred payment is popular among consumers who can pay in three or four instalments without interest. Experian’s report from September last year found that people rarely default on payments.

Dr Jane Brown is a lecturer at Newcastle University Business School who has researched the use of products that allow people to pay now and later. She said many consumers are happy with these products because they offer flexible payment plans. She warned, however, that consumers tend to underestimate their spending.

Credit cards and bank loans are also available to people. It’s hard to stop a runner once it starts.

Klarna, a major provider, said that they have “numerous safeguards” to protect their customers and make sure they can pay back. This includes robust eligibility checks for each transaction, and the restriction of our services in case there are missed payments. Our loss rate is less than 1%, which is 30-40% less than what would be seen on a credit-card.

Klarna reported that only 0.6% of all transactions were sent to debt collectors who are not allowed to charge interest. The company added that they support the regulation of this sector.

Zilch, a second provider, stated that it was already regulated by the FCA under an innovative program.

A spokesperson from the company stated: “It is time to regulate in order to close this loophole.” If consumers are protected properly, [‘buy-now-pay-later’] can be a lower-cost and more valuable alternative to high-interest-rate credit cards.