Consumer groups are warning that these “desperate” measures are “really worrying.”

A survey in April by the Office for National Statistics in Great Britain showed that about four in 10 British households are finding it difficult to pay for gas and electricity and a similar proportion are buying less food. The survey reflected the impact of the change in the energy bill cap set by the UK regulator and the deepening cost of living crisis in the country. Furthermore, consumer groups are warning that households’ finances are stretched enough for them to resort to buy-now-pay-later (BNPL) schemes to pay energy bills. (FT)

UK households reach out to BNPL to cover their expenses

Zilch, a UK fintech, started offering BNPL credit for groceries and takeaways in February. Richard Lane, Director of External Affairs at 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.”

According to the FT, Zilch is now also offering households the BNPL option to pay towards energy bills in four instalments over six weeks at zero interest.

Energy Support and Advice UK, an advisory for consumers pressured by electricity bills, has raised a red flag on the rising interest in BNPL to cover these expenses. It warned its members to treat with extreme caution any offers of BNPL loans to pay energy bills.

Similarly, Matthew Upton, director of policy at Citizens Advice, a charity, told the FT that borrowing through BNPL “can be like quicksand — easy to slip into and very difficult to get out of.” Instead, consumers could renegotiate payments with their energy supplier, he recommended.

But it’s easy to understand consumers’ difficulties. Britain hiked its energy price cap, applicable to about 22 million households, by 54% at the beginning of April. This ceiling is likely to be reviewed higher in October.

However, Zilch claims its BNPL allows consumers to better manage their energy bills compared to credit cards, which typically charge heavy late fees and penal interest.

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