What is buy now, pay later?

Incl the pros and cons and why you might have less consumer protection

What is buy now, pay later?

Millions of people in the UK are choosing the option to 'buy now, pay later' when shopping online and in store. While arguably a simple concept, buy now pay later is a FORM OF BORROWING, and therefore it's important to know exactly what you're getting into as it's not necessarily easy money. This guide lists the main players, what to look out for, what you can do if you're struggling to repay and other need-to-knows.

Note. This guide only covers buy now, pay later schemes which let you borrow over a short period. Some providers offer longer-term financing, but this is subject to official credit agreements and is not covered in this guide.

11 buy now, pay later need-to-knows

BIG WARNING. Buy now, pay later is a form of borrowing. Even if you are spreading the cost, you'll still need to pay back the balance eventually. While spreading costs can be helpful for your finances, the option to pay in instalments might tempt you to overspend. If you know you don't have the money to spend, spreading the cost won't necessarily mean you can afford what you're buying. In the UK, shoppers who use BNPL owe an average of £176. Struggling with overspending? We've got a Stop Spending guide with plenty of tips.

  1. Buy now, pay later lets you, er... buy now and pay for it later...Just remember, there's no such a thing as a free lunch

    Buy now, pay later (BNPL) is an increasingly popular form of payment with shoppers in the UK but it doesn't come without risks.

    It's a very simple concept and pretty much does what it says on the tin, where instead of paying for something at the till or online checkout, you can spread out the cost – interest-free – over a number of weekly or fortnightly instalments, or as a lump sum at a later date.

    The repayment options – ie, how many instalments you can break the cost into and at what frequency these are charged – vary depending on which BNPL provider you end up using. You'll have to input your card details when you purchase something using BNPL, but after that the instalments should come out of your account automatically (so a bit like a standing order).

    We've got more information about how repayments work later on in this guide.

  2. No interest charged or hard credit checks

    One of the main draws of BNPL is that it's interest and fee-free, and you won't be subject to a hard credit check – which is a credit check that would leave a 'footprint' on your file.

    This access to 0% credit – which can be granted in moments – and the lack of a hard credit check (the kind that could negatively impact your credit score) has made BNPL a popular option with shoppers across the UK.

    Managed correctly, it can be a cheap way to borrow. However, unlike a 0% credit card, where what you owe can be spread over months or even years, with BNPL you'll need to clear the balance more quickly – typically within six weeks.

    But how do BNPL providers make any money if they don't charge any interest or fees, we hear you ask. The explanation is that, instead of charging you, BNPL providers make money by taking a cut from anything it helps a retailer sell.

  3. Klarna, Clearpay and Laybuy are the main players – but you can't pick and choose

    There are several BNPL firms operating in the UK, with the number growing each year.

    The main players are KlarnaClearpay and Laybuy. Klarna alone has about eight million UK customers, and works with more than 6,500 retailers, while Laybuy works with more than 800 retailers.

    However, retailers tend to work with one particular BNPL provider, which means you won't have a choice about which provider to use when you pay at the till or online checkout. For instance, Marks & Spencer works exclusively with Clearpay. So if you want to pay using BNPL at M&S, you'll have to sign up to Clearpay.

  4. Repayments are normally weekly or fornightly

    The method of repayment varies according to which BNPL provider you're using.

    Typically, you'll need to pay in equal instalments over a number of weeks, with the first instalment due when you purchase the product at the online checkout or till.

    With Klarna, you can pay in three instalments, the first being charged at purchase, the second after 30 days and third after 60 days. It also has the option of paying nothing at purchase, but clearing the balance in full up to 30 day later. Here's an example...

    If you used Klarna to buy a pair of £120 shoes, for example, you'd have two options. Either pay £40 at purchase, the second £40 at 30 days from purchase, and the final £40 instalment at 60 days from purchase. Alternatively, you'd pay nothing at purchase, but have up to 30 days to clear the entire £120 balance.

    Normally providers will also allow you to pay off your instalments or balance early.

    Here's a breakdown of how the main providers split your payments:

    How the instalments work (1)
    Provider How many instalments How frequently are the instalments charged When is the last instalment charged?
    Klarna 3 At purchase, and every 30 days thereafter 60 days after purchase
    Clearpay 4 At purchase, and every two weeks thereafter Six weeks after purchase
    Laybuy 6 At purchase, and every week thereafter Five weeks after purchase
    (1) This table refers to 0% interest repayment products, not longer-term financing.
    • When using BNPL you'll normally pay the first instalment at purchase, while the remaining instalments will automatically be taken from your debit or credit account at set dates (these are agreed at point of purchase too).

      You need to ensure that there is enough money in your account when these instalments are due, otherwise you risk being charged a late fee if the instalment can't be taken. If you're forgetful, or low on funds, it might be worth writing in your diary or setting reminders on your phone about when your future instalments are due, so as to ensure there are enough available funds.

      Your BNPL provider should give you prompts before payments are due as well and notifications when money has been successfully taken from your account.

      If you're using a BNPL app, you should get notifications about upcoming payments.

  5. Miss an instalment and you risk late fees

    With most BNPL providers you risk being charged late fees if you miss an instalment deadline (ie, if there aren't enough funds in your account).

    In some cases, these fees can eventually dwarf the cost of the product you've bought.

    Here's a look at what some of the main providers charge:

    • Clearpay charges a late fee of £6. This fee can only be charged once for orders under £24, but for orders over £24 you can continually be charged late fees, capped at 25% of the order's cost or £36 (whichever is less). So for a £40 item, the maximum amount of late fees you could incur is £10.

    • Laybuy also charges a late fee of £6. This fee can be charged twice per missed instalment (so £12 per instalment). If you were late in paying three instalments, the maximum amount of late fees you could be charged is £36.

    • Klarna doesn't charge late fees. Klarna brands itself as being 'no fees, no interest ever'. So even if you were continually late in paying off the instalments, you won't rack up late fees.
    • If you know you're going to miss a payment, the most important thing to do is get in touch with your BNPL provider in good time.

      Your provider should have a financial hardship policy, so if you're struggling with repayments then you should get in touch with customer services and see if you can agree an appropriate repayment agreement going forward.

      One option with Klarna is to 'snooze' your due payment by up to 10 days, though this can only be used once per order. If you're struggling with repayments for more than one order, then get in touch with your provider.

      For more information on debt and what help is out there, see our Debt Help Plan guide or our Mental Health & Debt booklet.

      Impacted by coronavirus? There is further help out there. If you're struggling to make BNPL repayments because of coronavirus, there are further options available if you need help – including the possibility of payments holidays. For more information on coronavirus-related BNPL help, see our Coronavirus Finance & Bills Help guide.

  6. Using BNPL means LOSING Section 75 consumer protection

    Section 75 laws mean your credit card provider must protect purchases over £100 for free, so if there's a problem – such as faulty or non-delivered goods – you could get your money back.

    However, Section 75 rules DON'T APPLY if you don't buy the product directly from the retailer, for example, if you use a third-party payment processor like PayPal. This exception also applies when using BNPL to purchase an item.

    So if you use Klarna, Clearpay or Laybuy to purchase an item on your credit card, but it turns up faulty or doesn't arrive at all, you won't be able to call on your credit card provider to pursue a Section 75 refund.

    Instead, you'll either have to explore what protection your BNPL provider gives you (this should be explained in its T&Cs), take up the dispute direct with the retailer, or attempt a chargeback request – although this is not a legal right, unlike Section 75.

  7. Missed payments can hurt your credit score

    If you're making late payments, your credit score could be negatively affected. Most BNPL providers reserve the right to file missed or late payments with credit reference agencies – including Clearpay and Laybuy – although they insist this is used as a last resort.

    If your debt is passed on to a debt collection agency, this is also likely to impact your credit score.

    The main exception is Klarna, which has told MoneySavingExpert.com that your credit score will never be impacted when using its 30-day and 60-day repayment products, even if your debt is passed on to a debt collection agency.

    For more information on why having a good credit score is important, see our Credit Scores guide.

  8. BNPL can be used online AND in store

    BNPL used to primarily target online shopping, but increasingly it's available in store at high street shops too.

    And while BNPL is popular with younger generations, it's growing in popularity with people of all ages (Klarna's average user is aged 33).

    It's not just clothing lines where BNPL can be used either. As mentioned above, Klarna works with more than 6,500 retailers and Laybuy with over 800. You should be able to see on a retailer's website whether using BNPL is an option.

    While BNPL remains predominantly an option for clothing retailers, it's branched out to other sectors such as gardening, homeware, toys and even statues (yes, we know!). However, BNPL isn't available for your daily needs, such as grocery shopping.

    Here's an example of the spread of retailers that are signed up: 

  9. Everyone has a different spending limit, though it's likely to be in the £100s NOT the £1,000s

    Each BNPL provider sets you a credit limit based on your credit rating, affordability and the provider's internal algorithms, meaning one customer's credit limit might differ from the next.

    With some providers, they may set you a smaller spending limit if you're a new customer, but this may be increased over time, depending on whether you miss payments. The likelihood is that your credit limit will be somewhere in the £100s though.

    When we talk about BNPL, think along the lines of a buying a new dress or shirt, not a spanking new 42'' plasma TV or entire kitchen.

    Klarna says that an average transaction cost for its customers is £70. In any case, Klarna does not allow you to have an outstanding balance in excess of £800. Additionally, Klarna performs an eligibility check each time you make an order, which might restrict how much you're able to spend.

  10. Are you a serial returner? Use BNPL and you no longer have to wait for refunds to be returned to your bank account

    When using BNPL you only pay for what you end up keeping, and this can be really handy if, for example, you are clothes shopping (particularly online). 

    Over to MSE Amalia, who uses Klarna, to explain:

    Let's say you're buying a dress, but are not sure which size fits. You could order a few sizes of the same dress and simply return the ones you don't want – meaning you won't end up paying for them. If you pick Klarna's option to pay in full up to 30 days later, you won't even have the inconvenience of an initial instalment leaving your bank account in the first place if you return the goods on time.

    In general, if you wish to return an item that you've bought through BNPL, you'll need to arrange this directly with the retailer and in accordance with their returns policy.

    Until a return has been processed by the retailer, you'll normally still need to pay any instalments due to your BNPL provider, and only when a returns process has completed will your BNPL balance and due upcoming instalments be amended. The exact process varies by provider, so it's important you check what the T&Cs say about returns and refunds.

  11. You can complain about your BNPL provider

    If you have an issue with your BNPL provider you should be able to complain directly to the firm. Klarna and Clearpay have instructions on their website about how to make a complaint, and say they aim to resolve complaints within four weeks.

    Alternatively, rather than going direct, you can also complain about your BNPL provider or a particular retailer via Resolver – an entirely free complaints tool.

    Resolver will be able to handle your complaint and, where possible, it'll escalate your case to the free Financial Ombudsman Service if your complaint remains unresolved or you're left unhappy with the outcome.