Everything you need to know about Buy Now Pay Later
The popular payment option allows you to make purchases faster and then pay them off over time. But is it a smart or risky way of shopping? Our guide explains how it works.
Key takeaways
Buy Now Pay Later (BNPL) allows buyers to spread payments for goods and services over time, essentially paying on credit
BNPL providers set their own repayment schedules with a different number of repayments over different time scales
Be aware that BNPL currently lacks the protection of credit cards (e.g., Section 75 of the Consumer Credit Act) meaning there is no safety net if orders don’t arrive or are faulty
Major BNPL players (Clearpay, Klarna, Laybuy, PayPal) don’t charge interest, but you could be hit with late payment fees and see your credit record damaged
The payment option, Buy Now Pay Later, has grown in popularity in recent years. According to CityAM, the UK’s largest BNPL provider, Klarna, says it has almost 42,000 retail partners in the UK, including Argos, AirBnB and Boots, and has served 10 million customers in the past year.
BNPL is usually associated with fast fashion and retail shopping, but there are now even companies offering the payment option for household bills and car repairs.
The payment method, which can now be chosen in store as well as online, allows buyers to spread payments and essentially pay for goods and services on credit.
What is BNPL?
BNPL works by you buying your goods or services using credit provided by the BNPL company. You then pay back the amount over a set period, typically in interest-free instalments.
It's a simple concept: buy now, pay later - hence the name.
How long do I get to pay it off?
Each BNPL provider sets its own repayment schedules. Some opt for monthly instalments, while others may require a full payment after a set period.
This flexibility can be appealing, but it's essential to understand the terms before you commit so you are able to keep up with the instalments.
When will your BNPL payments be taken?
Provider | No. of payments | Frequency | Last payment (after purchase) |
|---|---|---|---|
Klarna | 3 | At purchase, then every 30 days | 60 days |
Clearpay | 4 | At purchase, then every two weeks | Six weeks |
PayPal 'Pay in 3' | 3 | At purchase, then monthly | Two months |
Do BNPL providers charge interest?
The major players in the BNPL market - Clearpay, Klarna, Laybuy, and PayPal - do not charge interest, making them an attractive option for interest-averse shoppers.
Nonetheless, it's paramount to ensure you can meet the future payments to avoid financial strain.
What happens if I miss a payment?
Failing to make a payment on time can lead to late fees, which differ from provider to provider. Laybuy may charge up to £24, whereas Klarna avoids late fees and interest altogether.
Clearpay's fees are capped at 25% of the order's cost or £36—whichever is lower. PayPal stands out by not imposing late fees.
For example, Clearpay charges a late fee of £6 and an additional fee of £6 will be applied after seven days if you still haven’t paid. Its maximum fee is 25% of the order or £24, whichever is lower.
Klarna charges a late fee of £5, but gives you a seven-day grace period before a late fee is charged. It sets a maximum fee of £10 per order. PayPal's 'Pay in 3' BNPL scheme doesn't charge late fees.
While missing a payment can be expensive, it could also leave a mark on your credit report, hampering your chances of borrowing in the future.
If you fail to repay what you owe, your account could eventually be passed on to a debt collection agency.
Will I be credit checked by a BNPL provider?
Approaches to credit checks vary among BNPL providers, but you are unlikely to undergo a hard credit check.
While this might make BNPL seem appealing to customers with poor credit scores, your credit rating could be further damaged if you start missing payments. For example, Klarna reports your payment history to two of the leading credit reference agencies, Experian and TransUnion.
Klarna, for instance, performs soft credit checks for its payment plans, while Laybuy reviews the credit score of new users upon registration. Openpay also conducts credit checks, adding a level of financial scrutiny to the process.
How much can I spend on BNPL?
Each customer has a different limit depending on the BNPL provider and the soft credit check it undertakes ahead of a BNPL purchase to assess your affordability. The amount is likely to be in the hundreds of pounds rather than the thousands.
Be aware that a BNPL provider won’t be aware of what you’ve borrowed through BNPL elsewhere, so there is an increased risk of taking on more debt than you can handle.
Is it safe to use BNPL?
The safety of using BNPL services can be a grey area, largely dependent on an individual's financial health.
Unlike a credit card, buy now pay later providers aren’t protected under Section 75 of the Consumer Credit Act. This means there's no safety net if your order doesn't arrive or is faulty.
As such the government plans to bring regulation into the sector, which should give consumers extra rights.
These would include being given financial protection on purchases and being able to escalate your complaint to the financial ombudsman if you’re not getting a suitable resolution, but it’s not likely to come into force until 2026.
The Financial Conduct Authority has also voiced concerns regarding the affordability checks conducted by BNPL providers. Its worries are that the searches currently undertaken are insufficient and could see already financially vulnerable customers fall further into debt.
What are the advantages and disadvantages of using BNPL?
There are pros and cons to using a BNPL provider to make purchases. These include:
Advantages
Flexible Payments. Spread the cost of purchases over time, making expensive items more manageable within your budget
Interest-free payments. BNPL schemes offer interest-free options if payments are made on time, saving you money compared to traditional credit
Convenient and quick approval. Often requires minimal credit checks, providing instant access to credit at checkout whether in store or online
Disadvantages
Potential for overspending. Encourages impulse buying, which can lead to debt if you're not careful
Fees for late payments: Missing payments may result in hefty late fees or damage to your credit score
Limited consumer protection: BNPL currently lacks the robust protections of credit cards, like Section 75, potentially leaving you more vulnerable in disputes
BNPL vs. credit card comparison
When weighing BNPL against credit cards, it's important to consider the comparison table (not provided in the summary) to understand the differences in protection, interest rates, and other key factors.
Features | Buy now pay later (BNPL) | Credit card |
|---|---|---|
Payment structure | You’ll usually pay through the provider’s app | Option to set up a direct debit |
Interest | No interest as long as you pay back by the end of the repayment period | |
Fees | Potential fee if you miss the repayment date | Fees if you miss a payment or don’t meet the minimum monthly repayment |
Affordability assessment | At point of purchase only | Thorough check by lender |
Credit building | Won’t improve your score, but won’t affect it negatively if you pay back on time | |
Credit limit | You’ll have a spending limit set per provider, usually in the £100s | Decided by the lender based on your credit history and other factors |
Rewards | Unlikely but depends on the provider | May receive cashback or other incentives depending on the credit card you choose |
What are my alternatives to BNPL?
If you don’t want to buy through BNPL and don’t have the money upfront to make a purchase, you have other options, including:
Credit cards: Credit cards offer an additional layer of purchase protection, which BNPL currently lacks. A 0% interest credit card might be available to you and if you pay your balance off on time and in full, you shouldn’t pay any extra
Overdraft: An arranged overdraft on your current account offers a quick borrowing method, though potentially at higher interest rates. You might be able to get a bank account with a 0% overdraft, but they usually last for an introductory period only
Loan: If you want to borrow a larger amount over a longer term, a personal loan or secured loan could be a viable option. Your credit score will help determine how much you can borrow and at what interest rate.
Personal Finance & Insurance Expert
Our expert says...
"I’ve never been a fan of BNPL schemes, mostly because they encourage impulse buying and risk affordability problems, especially among those who are already struggling financially. There are now plans to make BNPL schemes play by similar rules, or regulations, as other lending.
"This will include making sure people can afford their borrowing and being clear and not misleading when it comes to advertising. But these rules aren’t yet in place, and there are other, more robust, more appropriate ways to borrow if you really need to."
Other useful guides
If you want to know more about credit and how credit works, check out our guides:
The advantages and disadvantages of credit cards
How to Improve Your Credit Score with a Credit Card
Compare credit cards with MoneySuperMarket
Here at MoneySuperMarket, we currently do not offer any BNPL products. However, if you’re looking for a credit card, we have a range of great deals for you to compare.
Just give us a bit of information about you and what type of card you would like and we’ll search the market to show you the best deals to suit your needs. Comparing in this way will not affect your credit score.
MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this service. Instead we are usually paid a fee by the lenders, but the size of that payment doesn’t affect how we show products to customers.
Author
Tim Heming
Personal Finance Expert
Tim Heming is a journalist and editor who has written about personal finance for national newspapers and consumer websites for 15 years. Tim enjoys providing no-nonsense information to help consumers...
Reviewer
Jonathan Leggett
Former Senior Content Editor
With over 15 years of experience in online content and journalism, Jonathan is a former MoneySuperMarket’s editor at large and works across our Broadband, Mobiles, Energy and Money channels. Along...
