You can’t get through many online checkouts these days without being presented with a “buy now, pay later” (BNPL) option.
These plans, offered by firms like Klarna, PayPal and Clearpay, let users split payments into three or four interest-free instalments and have become a go-to option for millions of people, with around two in five shoppers having used it before, according to Finder research.
Yet, BNPL users currently have very limited protections compared with people using other credit agreements, as these schemes are not regulated by the FCA.
Banks, for example, must conduct strict checks to ensure they aren’t lending more money to customers than they can afford, but BNPL providers don’t have to do this.
Anyone using a regulated financial firm can also turn to the financial ombudsman service (FOS) for help, but BNPL customers aren’t covered.
When do new BNPL rules start?
Sarah Coles, head of personal finance at Hargreaves Lansdown, explained: “If people using BNPL run into trouble, they don’t have the same protections as with regulated borrowing, so if you struggle to repay, you’ll be subjected to whatever approach the company chooses.
“If they treat you harshly, the financial ombudsman can’t step in and protect you.”
However, this is all set to change – but not until July 2026, when long-awaited plans to regulate these payment products will finally kick in. So, what does that mean for shoppers?
Here, we break down how the changes will affect you from that point on – and if you’re shopping on Black Friday and Cyber Monday, remember that these do not yet apply if you use BNPL.
Late fees, penalties and affordability checks
From next July, firms offering BNPL plans will have to be clear and transparent about any late fees and how using them could impact customers’ credit ratings, or they will face enforcement action from the FCA.
Vix Leyton, consumer expert at thinkmoney, said: “Clearer information should ensure those in vulnerable situations understand the consequences before they commit.”
BNPL firms must also start conducting strict affordability checks, including reviewing your credit history and financial situation to ensure they aren’t lending you more than you could afford to repay.
This should help prevent people from falling into problem debt.
Shoppers’ protections: complaints and refunds
Shoppers will be able to complain to the FOS if things go wrong – for example, if you feel you were lent too much money.
If the FOS agrees with you, it can help you get compensation.
Ms Leyton said: “If something goes wrong, whether that’s a missing delivery, unclear terms, or a provider that’s less than helpful when you fall behind, you’ll finally have a next step rather than staying in limbo, and firms which have been operating less diligently will have to up their game.”
Anyone using BNPL will also be able to get a full refund if the item they bought is damaged or doesn’t arrive as described, which currently isn’t a given.
This is because regulation will also bring BNPL products under Section 75 protection.
BNPL firms will report your repayments
BNPL firms will have to report customers’ repayment history to credit reference agencies like Experian and TransUnion, whether it’s good or bad.
That means if you consistently repay on time, using BNPL could boost your credit score.
This could help you if you apply for a mortgage or loan in future, as having a good credit history is viewed favourably by banks.
On the other hand, if you regularly miss payments, this could knock your score down, which could make it more challenging in future if you apply for a mortgage or other kinds of loans, and could mean you can’t access the cheapest rates on the market – and that’s outside the more immediate issue of the penalties you might have to be paying for missed payments.
How to avoid overusing BNPL
When used responsibly, BNPL can be a great way to spread big purchase costs, but the risk is that it is easy to become overwhelmed with repayments from multiple BNPL plans.
Millions of Brits are expected to fund the festive season via BNPL, but as it’s not due to be regulated until next July, shoppers are not yet fully protected.
So, it’s important to rein in spending where possible so you aren’t struggling in the new year.
Ms Leyton said: “Missed payments can easily get out of hand, and it can become very hard to keep track of and properly budget when you are regularly using them.”
She suggested making a budget of what you could realistically afford to repay in a single month, and make sure all your repayments due in one month do not exceed that amount.
That means you won’t have a shortfall when all the repayment deadlines come around.
Remember that Christmas is not just about spending money, and there are often cheaper alternatives, so you may not need to use BNPL in the first place. “Before putting Christmas on credit, it’s worth weighing up exactly what’s important to you and what’s just noise,” Ms Leyton added.
“For the essentials, planning early is key to create the biggest run-up and bag the best bargains, and remember that Christmas is about celebrating with the people you love, not how much you spend.”
