Is BNPL good for your finances? OR Should you ever “pay later”?

Buy Now Pay Later (BNPL) is a type of credit which has become increasingly popular over the last few years.  Brands include, for example, Klarna, Clearpay, Laybuy and Openpay.

These companies make their money by contracting with retailers, who pay them a percentage of the sale.

BNPL can seem very appealing if you are strapped for cash. If you purchase a high ticket item that you really need, you can defer payment without paying interest. However, if you miss a payment, you can end up paying a big penalty. Sometimes, it can be interest from the start of the monthly payments and other times from the month of the missed payment. You may also incur late payment fees.

Some schemes offer repayment terms of 30 days and others up to 12 months.

Pros and Cons of BNPL

BNPL can help you spread payments, helping with your cash flow. It also allows you to order a number of items before choosing what to buy before sending items back. It is possible to use BNPL and not pay anything over the cost of the item but you need to be careful.

There appear to be few money experts in favour of BNPL.

Hannah Duncan from HD Investment Content discusses in her article It’s not fair to target young people with Buy Now Pay Later how BNPL can prey on young people’s insecurities. She interviews a psychologist and has conversations with debt charities about some of the negative impacts on vulnerable people. The conclusion from is that there needs to be more “friction”:

“We need more friction, more protection and less emotive marketing… Our young adults need support, not more debt. something the FCA is debating at the moment. In non-technical terms this means that getting credit of this kind should not been a “smooth” process, there should be more “friction”. In short, it should be more difficult to get any kind of credit.”

She goes on to say:

“Promoting effortless debt for unnecessary items like fast fashion isn’t just unfair for young people, it can impact our whole society. Most importantly, young people deserve more support – not extra debt options – as they navigate through pandemics, stagnant wages, recessions and astronomical university fees”.

Debt advisor advice

Sara Williams is a volunteer advisor at Citizen’s Advice and runs the debt advice website Debt Camel. She says “BNPL can seem very convenient, but that is the main problem – by removing some of the “friction” from an online purchase, BNPL makes it too easy for many people to buy more than they want or can afford. Proper regulation and credit reporting is needed so that as much as possible of the advantages are kept, but the problems are reduced.”

The lack of regulation of BNPL

BNPL is currently unregulated. So, unlike other financial credit agreements providers do not have to carry out similar checks to other lenders. Conventional credit checks would ensure you can afford the payments and the lender would have to tell you in detail about the product and what will happen if you don’t pay.

At the moment also you cannot use the Financial Ombudsman if you have an issue and you don’t have Section 75 protection.

The Government is consulting on the Regulation of Buy-Now Pay-Later, closing  at the end of 6 January 2022.

FCA regulation 2026

From 15 July 2026, most Buy Now Pay Later (BNPL) deals provided by a third-party lender will become regulated credit, so lenders must be FCA-authorised (or in a temporary permissions regime) and meet rules on clear information, affordability checks, and help if you’re in financial difficulty. Not everything is covered: agreements entered before 15 July 2026 remain exempt, and BNPL used for insurance premiums, employee loans, or provided by registered social landlords won’t be regulated; the broking of BNPL is also exempt.

Practically, before you use BNPL after that date, check your lender is FCA-authorised/in TPR, you should expect better pre-contract info and ongoing updates. The FCA aims to reduce harm while keeping access meaning stronger consumer protections on new third-party BNPL, but older or exempt deals won’t get the same safeguards.

You will be able to use the Financial Ombudsman Service for BNPL lenders.

Can you afford BNPL?

Using BNPL may be a good way to spread payments. But you must work out if you really can afford it before purchasing that item. It might well be that you have a month with big car bills, for example, and that after then cash flow will be easier.

However, if you are thinking of spreading out a payment plan over a number of months, list your other expenditure for each of those months to see if you can really afford it. Also, take into account the possibility of increased energy bills, for example.

Using BNPL may affect your credit score. All you need to know about credit score rating. Check your credit score before applying, as you may be refused.

Look at other ways to save in all areas of your life. If you are already in debt you can get advice from Step Change, Citizen’s Advice, Debt Advice Foundation, Money Helper and Debt Camel.