“Buy now, pay later” (BNPL) options have overtaken online shopping carts in the UK and the United States. If it’s a £100 coat or a $1,000 couch, consumers are choosing to pay in instalments — interest-free, maybe no credit checks, instant approval. Sounds amazing, right? Then there’s the drawback — increasing debt, not paying, and creating an illusion of affordability.

In this blog, we will clarify what BNPL is, why it’s so popular, and what concerns you should have.

What is BNPL (Buy Now, Pay Later)?

BNPL stands for Buy Now, Pay Later — which is a form of short-term financing that allows consumers to buy something and pay in instalments. Companies like Klarna, Clearpay, and Afterpay (US) typically allow you to split the purchases over 3 or 4 payments, often with no interest.

Instead of paying £120, you can pay £30 today and the rest in the next few weeks. Some BNPL companies will allow you to pay over a longer period.

Why is BNPL so Popular?

BNPL became very popular as a result of the pandemic, where online shopping boomed, and consumers were seeking flexible ways to manage their cashflow. But why is it appealing?

• Instant approval: No lengthy application like credit cards.
• No interest most of the time: Feels safe compared to traditional credit.
• Seamless checkout experience: Built right into your favourite fashion or tech store’s checkout.

It doesn’t feel like debt but it is.

Who Uses BNPL the Most?

BNPL is most popular with:

• Gen Z and Millennials, because they like mobile-first financial services.
• Online shoppers – mostly in the fashion, beauty, and tech sectors.
• Budget-conscious shoppers who want more flexibility in their spending

According to a 2023 survey, 1 in 5 UK shoppers had used BNPL in the previous 12 months, and more than half of all American Gen Z shoppers had used BNPL.

What are the Risks of BNPL?

Despite the convenience of BNPL, it also has its real financial risks:

1. Missed Payments Can Hurt Your Credit Score – Some BNPL services now report missed payments to credit agencies. That ‘unharmless’ £40 pair of shoes can hurt your ability to get a mortgage.
2. Overbuying is easy – It can be easy to excess buy when you are not paying the total upfront amount. BNPL doesn’t just promote impulsive purchases, it makes it easy to do so – it’s possible you could spend a lot more than you intended until it’s too late!
3. Other Hidden Late Fees and Penalties – While most services are “interest-free”, late fees can add up fast. Some companies charge flat fees, while others tack on interest if you miss a payment.

How is BNPL regulated in the US and the UK?

In the UK BNPL regulation is still taking shape. As of 2024, the UK government has indicated that they plan to release stricter regulation requiring:

In the UK

• Clearly explained terms and conditions
• Credit checks for longer-term loans
• Increased scrutiny of financial promotions

But many BNPL transactions still go unrecorded, especially compared to traditional loans.

In the US

The Consumer Financial Protection Bureau (CFPB) has issued warning compliance notices and started to monitor some information regarding BNPL services. The push to treat BNPL like a credit card is gaining traction, which will increase supervisory compliance, transparency, dispute rights, etc.

Are there any benefits to using BNPL?

Yes. BNPL, when used responsibly, can be a useful financing option, including:

• Spreading the cost of the larger purchases
• Avoiding credit card interest repayments
• Great for emergencies (assuming repayment is guaranteed)

But that’s a big “if”. Responsible use is important, and it won’t be right for everyone.

How can you make smart BNPL decisions to keep you out of debt?

How Can You Use BNPL Safely depends on

Here are a few ways to responsibly access BNPL without risking debt:

• Only buy what you can afford in full payment today
• Keep on top of repayments, use reminders (or budgeting apps)
• Keep the number of active BNPL plans at one time to a minimum.
• Check that it does not affect your credit report.

Will BNPL continue growing?

Yes, BNPL is set to grow to more than £30 billion in the UK by 2026 and over $100 billion in the US. But with growth comes growing levels of responsibility for consumers and regulators.
More traditional banks and credit card companies are getting involved in the space and there are new fintechs launching their own versions of it too. As competition increases there will likely be increased scrutiny.

Will BNPL have an impact on your credit score?

Short answer: it depends. Some BNPL providers will report late payments to credit bureaus and regular use of BNPL could reduce your creditworthiness, and you might not have ever missed a payment.

BNPL Companies to Watch

• Klarna – partnered with JP Morgan
• Clearpay – owned by Afterpay
• Affirm – based in the USA and partners with Amazon
• Zip – expanding into other markets in the UK and USA
• Very & Argos – retailers offering their in-house BNPL scheme

B2B BNPL: The latest trend?

While most of the growth from BNPL has come from B2C – B2B BNPL is emerging, most notably with UK startups who are offering flexible invoice arrangements for SMEs.

Conclusion: Pay later, regret later?

BNPL isn’t necessarily a bad thing, for some people it acts as a budget tool. But it can also produce an illusion of affordability for others. Before clicking “Pay Later”, maybe we should consider “would I buy this if I had to pay full price today?” And if the answer is no – maybe the true cost isn’t only a free lunch.