UK households struggling with surging energy costs are being tempted into “buy now, pay later” financing schemes to spread out payments on their electricity and gas bills as the cost of living crisis deepens, according to consumer groups.
Energy and debt advice groups have warned the “really worrying” development is a sign that individuals and families are having to resort to increasingly “desperate” measures to cover basic expenses.
Energy Support and Advice UK, which runs a Facebook-based advice service for consumers worried about their bills, this week issued a warning on its site to treat “buy now, pay later” (BNPL) offers to help with rising energy costs with “extreme caution” after detecting an increasing number of posts about such financing arrangements.
Gemma Hatvani, founder and chief executive of Energy Support and Advice UK, warned that some households were bypassing their suppliers and being tempted into BNPL arrangements even though they were “just delaying the inevitable”. “It is really worrying,” Hatvani said. “It’s going to cause massive problems.”
Buy now, pay later company Zilch is offering households the option to pay towards energy bills in four instalments over six weeks at zero interest.
Zilch, which earlier this year attracted criticism for promoting its services to buy food and takeaways, insisted it offered consumers the opportunity to manage their energy costs “in a better way” than credit cards, which are used by millions to pay for electricity and gas bills and attract high interest rates.
“Anyone who falls behind on repayments is immediately stopped from borrowing any more and provided with contacts for independent debt advice charities,” the company said. “Zilch has never charged a customer a late fee and never had to use a debt collection agency since inception.”
It added that customers who experienced cash-flow difficulties could choose to “snooze payments”.
But debt and energy advice groups warned that consumers were better off approaching their energy supplier to negotiate repayments. Matthew Upton, director of policy at Citizens Advice, a charity, said borrowing through BNPL “can be like quicksand — easy to slip into and very difficult to get out of”.
Richard Lane, director of external affairs at debt charity StepChange, said: “Using credit to pay for essentials is a big red flag for us as a debt charity that indicates that someone is in problem debt, so it’s an especially worrying development to see buy now, pay later services used to pay for energy bills.”
Adam Scorer, chief executive of fuel poverty charity National Energy Action, said the development was “another sign of how desperate things have become”.
The UK government is coming under increasing pressure over its response to the energy price surge, which is fuelling a wider cost of living crisis.
Britain’s energy price cap, which dictates bills for 22mn households, rose 54 per cent at the start of April to just under £2,000 a year on average and is forecast to increase further when it is next reviewed by the energy regulator Ofgem in October.
Chancellor Rishi Sunak earlier this year unveiled a £9bn package to help meet rising energy costs, including a £200 discount to be applied to all households’ bills in October and then repaid in £40 instalments over a period of five years from 2023.
But critics have pointed out that the £200 will probably be wiped out by the expected increase in October’s energy price cap.
“The UK government’s response does not provide enough support for those who are hardest hit by the energy crisis, at best only addressing half of the April [price cap] rise,” Scorer added.