Buy now pay later explained: how it works, late fees and your rights

Buy now pay later, or BNPL, is a way of spreading the cost of something you buy, interest free, over a short period, usually 12 months or less¹. You get the item straight away, the BNPL provider pays the retailer, and you repay the provider in instalments or by an agreed date. It is offered at checkout by many retailers through providers such as Klarna, Clearpay, PayPal and Amazon².

It has become one of the most common ways to pay in the UK. 12.9 million people, or 22% of UK adults, used BNPL at least once in 2025³, and it now accounts for 8% of all online and physical point of sale payments⁴. Until recently most BNPL sat outside financial regulation, but from 15 July 2026 BNPL products come under Financial Conduct Authority (FCA) regulation for the first time, bringing affordability checks, clearer information, Section 75 protection and access to the Financial Ombudsman Service⁵.

Pay in instalments or pay later: the main types of BNPL

Buy now pay later is an online payment option that allows you to buy an item straight away and delay paying until a later date⁷. In its formal, regulated name it is called Deferred Payment Credit, or DPC⁸. The typical pattern is either paying regular instalments over a period of weeks or months, or agreeing to pay by a fixed date and paying off the balance in full no later than that date².

There are three types of BNPL product: Deferred Payment Credit, fixed sum loans, and short term interest free credit⁸. The best known versions work simply. Klarna and Clearpay, two of the main short-term BNPL providers, offer payment after 30 days or spreading the cost over three or four months⁹. Repayment terms generally run to 30 days, 3 months or longer depending on the item¹⁰. Under the definition now used in regulation, BNPL is interest-free instalment credit that divides the cost of purchases into regular payments over a period not exceeding 12 months, in up to 12 repayments¹¹.

BNPL is offered through many providers, including Klarna, Clearpay, PayPal and Amazon²; Laybuy is another example². The full list of providers and how each one works is covered in buy now pay later providers. Reach has grown quickly: in 2021 over 20,000 merchants offered BNPL at checkout, a figure the Government believes had at least doubled by November 2024¹². It is no longer only an online option, as BNPL now covers 8% of all online and physical point of sale payments⁴.

Usually interest-free, but it is still a loan

The attraction of BNPL is that it is usually interest free, but it is still a loan¹³. The provider pays the retailer for you, and you owe the provider that money back. Most people who use it think of it as a way of spreading payments rather than as a form of borrowing¹⁴, which is worth correcting in your own head: a missed payment has the same consequences as missing any other credit repayment.

The interest-free period is not open ended. If you do not pay off the full amount within 12 months, interest will usually start to be added⁸. Some store cards work on a similar principle, for example an Argos Card offering six months of no interest before payment falls due¹⁵. BNPL also sits alongside other forms of consumer credit such as credit cards, overdrafts and loans⁷, and the mechanics of how borrowing and interest work generally are explained in how personal borrowing works and how loan interest is calculated.

Late payments: fees, debt collection and your credit report

If your payments are late or you miss one, you may be charged a penalty fee, and your provider may pass information about the missed payment to credit reference agencies, which will affect your credit score². Late fees across schemes range from £10 to £24⁶. Klarna, for example, adds a £5 late payment fee for any payment made more than seven days after the due date, capped at two late payment fees per order⁹. You can also be charged high fees and interest if you fall behind¹³.

Under the rules in force from 15 July 2026, if you miss a payment your provider must contact you promptly, explain the consequences and give you reasonable notice before taking further action, and must offer appropriate support and signpost free debt advice if you show signs of financial difficulty⁵. Providers must also tell you upfront the circumstances in which charges for late or missed payment will be applied, the amount of those charges, and the risk to your credit rating¹⁸. BNPL providers run an affordability check for all purchases and will reach out to you if you miss a payment².

If arrears build up, the debt can be passed to a debt collection firm. Debt collection is one of the most complained-about categories the Financial Ombudsman Service sees, with 552 complaints opened in one recent quarter¹⁹. If you cannot repay, free help is available, and the options are set out in what to do if you can't repay a loan.

Credit checks and how BNPL shows on your credit file

For anything you buy using BNPL, a lender will carry out a credit check to make sure you can afford the repayments⁸. Some providers carry out a soft credit check, and some carry out a hard credit check². A soft check does not leave a visible mark for other lenders; a hard check does, and too many hard checks in a short period can weigh on your credit score.

BNPL lenders are now sharing information with credit reference agencies, including details of purchases, late payments and unpaid purchases¹⁰. If you miss payments on a BNPL agreement, they will show on your credit score and can make it harder to get credit in the future⁸. How borrowing affects your credit file generally is covered in how loans affect your credit file.

This matters most when you apply for larger credit, especially a mortgage. Lenders are increasingly asking about BNPL use as part of their affordability assessment processes for mortgage lending¹⁴. A history of missed BNPL payments, or several agreements running at once, can reduce what a mortgage lender will offer. Before regulation, BNPL providers were not required to undertake a creditworthiness assessment before extending credit¹⁴, which is one of the practices the new rules change.

FCA regulation from 15 July 2026: what changes for you

For most of its history, BNPL was not regulated by the FCA. An exemption in law meant these payment plans were not treated in the same way as traditional credit agreements²⁰: interest-free credit of 12 payments or fewer, within 12 months, fell outside regulation²¹. That changed in stages.

The government launched a consultation into regulating buy-now-pay-later in October 2021, closing on 6 January 2022²⁰. Parliament approved plans to regulate the sector in July 2025²², and the FCA started regulating Deferred Payment Credit, often known as Buy Now Pay Later, on 15 July 2026²³. In law, BNPL agreements are now classified as regulated credit agreements¹¹.

For you, the changes from 15 July 2026 are:

• Affordability checks: providers must carry out upfront affordability checks to ensure shoppers can manage the debt they are taking on²⁴.
• Clear information: firms must follow consistent standards so you know what you are signing up to, whether you can afford the purchase, and what happens if you miss a payment²⁴. This includes how much you are borrowing, the total cost, how much and how often you will repay, and whether your credit record may be checked⁵.
• Section 75 rights: new agreements carry rights under section 75 of the Consumer Credit Act, making it easier to obtain refunds for issues like faulty goods¹¹.
• Ombudsman access: the Financial Ombudsman Service can look at a complaint if you took out the agreement on or after 15 July 2026¹.
• Fairer refunds: BNPL shoppers have fairer and faster access to refunds²⁴.

Section 75 protection: £100 to £30,000, new agreements only

Section 75 of the Consumer Credit Act 1974 makes a credit provider jointly liable with a retailer when something goes wrong. From 15 July 2026, when you buy a single item costing between £100 and £30,000 using a BNPL provider, you are protected under Section 75: your BNPL provider is jointly liable if goods are faulty, are not delivered, or the retailer goes out of business². This means your BNPL provider and the retailer are both jointly responsible if anything goes wrong, and you can seek a partial or full refund from either⁸.

The limits come from the law itself. Section 75 does not apply to a claim under a non-commercial agreement, or so far as the claim relates to any single item with a cash price not exceeding £30 or more than £10,000²⁷. In practice, the £100 to £30,000 range is what BNPL inherits for new agreements². Section 75 does not apply to charge cards or debit cards²⁸, and it does not apply to an agreement secured on land²⁹.

Two gaps remain. First, purchases made before 15 July 2026: you cannot start a Section 75 claim if you paid using buy now pay later²⁵. For those older purchases, you can start a chargeback claim with the credit card provider you are using to make payments to your BNPL account²⁵. Second, purchases through a third-party website: you will not automatically be protected by either Section 75 or chargeback²⁶. How Section 75 works across point-of-sale credit generally is covered in Section 75 on loans, car finance and point-of-sale credit.

Is buy now pay later a good idea?

Whether BNPL suits you depends on your circumstances, and the evidence gives reasons for care on both sides. On the positive side, it is interest free if you pay on time, some providers let you snooze repayments for a short time, and some do not charge a late fee straight away if you are late, sending a reminder instead¹⁴. For a planned purchase you could pay for anyway, spreading it at no cost is the appeal.

The risk side of the ledger is substantial. A survey by the Money and Pensions Service found that 14% of BNPL users had paid a late fee¹². 44% of frequent BNPL users are over-indebted, according to the FCA's Financial Lives survey¹². People who use BNPL are more likely to have experienced a significant life event in the past year, or to have recently defaulted on a household bill or another form of credit¹⁴. The average BNPL purchase in the UK was £114 in 2024⁴, small enough that multiple agreements can stack up unnoticed.

Of those who use it, 42% used the service monthly or more often in 2025, up from 33% in 2024³, so for many it has become a routine payment method rather than an occasional one.

If the question is how to borrow for a purchase, BNPL is one option among several, each with different costs and risks. The alternatives, including credit cards, credit union loans and other affordable credit, are set out in types of loan, credit union borrowing and buy now pay later or a credit card?. If money is tight, free debt advice before borrowing is usually the better starting point.

Complaints and free debt help

If you have a complaint about a BNPL agreement taken out on or after 15 July 2026, the Financial Ombudsman Service can look at it¹. Complain to the provider first, giving it a chance to respond, and then take the complaint to the ombudsman if you are not satisfied. The process is covered in complaining about a lender. For agreements taken out before 15 July 2026, the ombudsman route is not available¹.

If BNPL or other debts have become unmanageable, free and impartial help exists:

• StepChange Debt Charity provides free debt advice online and by phone, including specific guidance on buy now pay later⁸.
• Business Debtline offers free guidance if you are self-employed, including on BNPL⁹.
• Citizens Advice helps with purchase problems, including when a company stops trading or goes out of business²⁵.
• Independent Age offers money and debt advice for people in later life⁷.

Debt charities also publish practical guidance on managing costs, including making the most of your money when budgets are tight¹⁰ and saving money during holiday periods when BNPL use tends to rise¹⁶. The wider options for dealing with problem debt are set out in debt: a complete guide.