What is Buy Now Pay Later?

When you’re offered Buy Now Pay Later (BNPL) at the checkout, this is a credit agreement – a form of borrowing.

Some retailers have their own BNPL scheme, but usually it’s run by a third-party provider such as Klarna, Clearpay or PayPal.

These third-party BNPL providers are now regulated by the Financial Conduct Authority (FCA) Which gives you extra protection.   It also means they have to check your financial situation before they choose to lend to you, to make sure you’re not borrowing more than you can afford to repay.

However BNPL products offered directly by the retailer usually aren’t regulated which means you might get offered more than you can afford to repay.

You can find out more about this consumer protection below but you can also check if a BNPL provider is regulatedOpens in a new window on the FCA firm checker.

If you choose to use BNPL, make sure you understand how it works and what happens if you can’t afford to repay. For example, you could face late fees or the payment could be rolled into the next one.

If you’re offered BNPL, you’re likely to be able to choose between two repayment options:

• Paying in several equal payments. You pay off the cost of the item regularly, usually fortnightly or monthly, or over a few weeks or months.
• Paying the full amount in one go after a fixed period. You get a set interest-free period and only pay on an agreed date if you decide to keep the items. This can be useful if you want to try an item before you buy as you can return the goods without paying for them if they’re not right.

BNPL can be a useful way to spread the cost of purchases if you use it carefully and can afford the repayments.  As with any type of borrowing, there are risks you need to be aware of – as some forms of BNPL aren’t regulated in the same way as other consumer credit products and not subject to the same warnings.

From 15 July 2026 new rules came in that mean that third-party BNPL schemes such as Klarna, Clearpay and PayPal are now regulated by the FCA which gives consumers greater protection.

These BNPL schemes are sometimes known as ‘Deferred Payment Credit’ (DPC).

Here’s what you need to know before using it:

Some retailers encourage people to choose BNPL over other ways of paying by making it the default payment option or offering an incentive, such as a discount or free delivery.

But it’s important to give yourself enough time to think about how you’ll repay, and decide if BNPL works for you.

Any BNPL product covered by the new regulations and taken out on or after 15 July 2026 will need to provide you with clear information before you take out the agreement.

This means it must set out your payment schedule, any fees and charges for late payments, and your statutory rights. It’s important to understand what you’re signing up for by checking these terms and conditions.

Having lots of BNPL agreements of small amounts can start to build up. As well as checking you can afford all repayments on top of any other bills, make sure you keep track of when every payment is due.

From 15 July 2026, BNPL products offered by third-party providers such as Klarna, Clearpay and PayPal will be regulated by the FCA.

This means these providers must check you can afford to repay what you owe before they approve you. This will include making a ‘soft search’ or in some cases, a ‘hard search’ on your credit report for your credit history.

A ‘soft’ search isn’t visible to anyone but you and the credit reference agency (CRA) so it doesn’t affect your credit score at all. It also means they won’t know whether you can afford to repay what you owe.

A hard search will affect your credit score and lots of hard searches in a short space of time can make potential lenders think you rely too much on credit and might be higher risk. You can find out more about this in our guide How to check your credit report for free.

Your BNPL provider will tell you before you make the application whether it will run a hard search or a soft search. Typically, BNPL agreements that run for less than a year will only run a soft search while those that run for a year or more might run a hard search.

MoneySavingExpert lists which credit reference agencies BNPL providers report toOpens in a new window

If a third-party BNPL provider such as Klarna, Clearpay or PayPal, turns down your application for a BNPL product, it’s important you find out why before applying again as you might be able to make some changes.

You can find out more in our guide What to do if you’re rejected for a loan or credit card.

If you pay for something that costs over £100 (so an item that costs exactly £100 would not be covered) and up to £30,000 (not £30,000.01) by credit card and there’s a problem, for example an item is damaged or broken, you can make a complaint to your lender and ask for a refund under section 75.

This section 75 protection has now been extended to include items paid for using a BNPL product. To qualify the BNPL product must:

• Be from a third-party BNPL provider such as Klarna, Clearpay or PayPal (it can’t be a BNPL product offered directly by a retailer)
• Have been taken out on or after 15 July 2026.

Before you buy anything, check what buyer protection your BNPL provider offers. For example, some providers will pause payments until the issue is resolved and refund any payments you’ve already made if the dispute is settled in your favour. However, be aware these are policies rather than legal rights.

BNPL products from third-party providers such as Klarna, Clearpay and PayPal taken out on or after 15 July 2026 are regulated by the FCA.

You can check if a BNPL provider is regulatedOpens in a new window on the FCA firm checker.

If your BNPL provider is regulated by the FCA, you can also complain about it to the Financial Ombudsman. You can find out more about the steps you should follow to make a complaint in our guide How to complain to your bank, insurer, lender, card or investment provider.

BNPL firms also need to work with you to find alternative payment arrangements if you are struggling to pay.

You can find out more information about help clearing money owed to lenders in our guide What is breathing space and how can it help me?  

Keeping a record of how much you’ve spent and when your payments are due is vital to avoid extra charges on BNPL agreements, especially if you’ve got more than one.

Some BNPL providers offer you access to your account via their website or an app to help you keep track.

When using BNPL, there are a few things you can do to help make sure you don’t pay more than you need to:

• Look out for notifications from your provider telling you when your next payment is due.
• Make sure you’re able to make payments when they’re due. For example, if you had an unexpected expense, would it make you miss a payment?
• Avoid using BNPL if you’re already in problem debt and get help as soon as you can from a free, impartial debt adviser.
• Set up a Direct Debit or use your debit card to make repayments. Making repayments with a credit card means that you still owe money to the card provider.

Paying in instalments or delaying when you have to pay for your purchase can feel like a good way to manage your money, especially if you need to buy essentials. However, if you’re struggling to keep up with payments, try to avoid taking out multiple BNPL agreements until you’re back on track as it makes it harder for you to keep on top of different repayment dates.  

While using BNPL schemes can be a cheap way to borrow, fees and late payment charges can quickly add up. Also, the more often you use instalments or delayed payments, the more likely they are to appear on your credit file. This could have a negative impact on your credit rating.  

Ask yourself if you would buy the item if it weren’t offered to you in this way. In other words, do you really need it?

If you’re worried about money, and you haven’t done so already, look at what you’re spending and what income you have coming in to see if you can cut back on costs.

If you don’t keep up with your repayments, you can be charged a penalty fee or interest (or both) depending on what kind of BNPL contract you’re on. Make sure you know what the charges are if you miss a payment, as penalties vary between providers. 

If it’s likely you’ll miss a payment, it’s important you talk to your provider before the payment is due. Missing a payment will negatively affect your credit score and could affect your ability to get credit in the future. 

By talking to your provider, they could offer help including:  

• working with you to provide support before you miss any payments. 
• working out an alternative repayment plan to help make payments more manageable  
• giving you enough time to repay and not pressurising you into repaying your debt within an unreasonably short time. 
• making sure your balance doesn’t get out of control once a repayment arrangement is in place. 
• recognising and responding to your needs if you’re in vulnerable circumstances.

If you’re using BNPL to pay for essential shopping, there is help available in our guide Living on a squeezed income.

If you miss a payment and don’t get in touch with your provider, they will usually follow this process:  

1. They might first ask you to get in touch by writing to you or calling. 
2. If you don’t deal with the debt, the loan will ‘default’ (in other words, you have failed to make payments).  
3. When the loan has ‘defaulted’, charges and interest could be added – increasing what you owe. 
4. If you still haven’t responded, your lender might go to court to seek a County Court Judgment (CCJ). In Scotland this is called a decree. A CCJ gives your lender more options to enforce repayment of the debt. These measures can seriously affect your ability to get credit with other lenders in future. 
5. The debt may be sold on to a debt-collection agency who will contact you and ask for payment. However, they are not allowed to remove goods. If you have not paid the debt after a County Court Judgement (CCJ) has been issued, the lender can apply for a warrant of control and instruct enforcement agents (also known as bailiffs). It is only at this stage that some goods can be taken and sold to pay towards the debt. 

Buy Now Pay Later is just one way to borrow money.