What do new ‘buy now, pay later’ protections mean for you?

I’ve not succumbed (yet) – what exactly is buy now, pay later, and how big is it?

BNPL is a form of credit. It lets people spread payments for everything from clothes, jewellery and white goods to concert tickets, flights and hotel rooms and takeaway pizzas.

It has really taken off in the UK in recent years. The sector’s value jumped from £60m in 2017 to more than £13bn in 2024, according to the FCA, and will be higher than that now.

When someone uses BNPL to buy something, typically the cost is split into three or four instalments that they pay off over a few weeks or months.

If they keep up with their repayment plan, they will not pay interest or charges, making it effectively free to use. But if they miss payments, they will often be hit with late fees as well as – in some cases – a mark on their credit file.

BNPL is offered by a vast array of retailers, with three brands – Klarna, Clearpay and PayPal – dominating the UK market.

The use of this type of credit rose from 14% to 25% of UK adults in only a year, according to the banking body UK Finance’s latest data. Young people fuelled its rise, but more recently, the biggest growth has been among older consumers.

Why is the government taking action?

Regulators, consumer bodies and others have long voiced concerns that some shoppers will end up borrowing money they cannot afford to pay back on time, thereby incurring charges, getting into debt and damaging their credit score.

Organisations such as Citizens Advice have talked about how they are helping “more people than ever before” with BNPL-related problems.

The biggest issue with BNPL was that, up until Wednesday, it was not regulated in the same way as other consumer credit products.

What are these new rights and protections?

The shake-up gives people protections in line with other forms of credit such as a credit card or personal loan.

BNPL lenders will now have to carry out an affordability check before each loan is taken out (many firms say they already run these checks). The Treasury said this should ensure no one borrows what they cannot realistically afford to repay. 

Firms will need to provide clear, upfront information, including when payments will be due and what happens if you miss one. And anyone who falls into financial difficulty will be directed towards debt advice and support first, rather than being immediately handed to a debt collector. 

BNPL users will benefit from section 75 protection on purchases above £100. This is the same protection long associated with credit cards, and gives people the right to claim against their BNPL provider, as well as the retailer, for qualifying purchases between £100 and £30,000 if something goes wrong.

Many BNPL purchases involve amounts smaller than £100 and the credit reference agency Experian says the average transaction value is about £60. For transactions below £100, some firms will continue to offer their existing support: for example, those using Klarna to buy something costing less than £100 will still benefit from its “buyer protection” policy.

Shoppers will be able to complain to the independent, free Financial Ombudsman Service if they have a problem such as an incorrect black mark placed on their credit file, or if BNPL has been mis-sold, said Martin Lewis, the founder of MoneySavingExpert.com.

What about downsides?

There are differing views about the impact and unintended consequences of the new rules.

It is claimed that up to 30% of current BNPL users could be rejected under the new affordability checks, and that nearly half of those likely to be turned down have never missed a payment. This is a claim made by Fair4All Finance, a not-for-profit organisation working to increase financial inclusion that was set up through the Department for Culture, Media and Sport.

Its chief executive, Kate Pender, said that “there’s a real risk that many people who currently use BNPL responsibly could be unfairly excluded”, and that some of them could be pushed towards alternatives including illegal money lenders.

Meanwhile, the new rules could reshape the market. Ben Player, a partner at the law firm TLT, said larger BNPL providers and those already authorised by the FCA would be better placed to absorb the compliance burden, while smaller players may struggle with the cost and complexity, “prompting consolidation… or even exits”.

Others have claimed the sector will grow because there are consumers and retailers who have been waiting for regulation that will now come into the market.