Buy Now Pay Later – Increasing use, increasing problems?

Buy Now Pay Later (BNPL) agreements have been around since the 19th century, when they were typically used to buy large, expensive items of furniture or farming equipment. Whilst the agreements have changed over the years, the premise is still the same, payments are spread over a period of time and you can own the goods from the outset.

BNPL agreements have seen a huge surge in recent years, with Klarna, the largest of the BNPL operators, seeing its worldwide customer base increase by 70% to 150 million in 2021 due to its interest-free repayment model.

However, unlike normal credit agreements, the Financial Conduct Authority (FCA) does not regulate all BNPL products. Typically, interest free agreements under 12 months are exempt from FCA regulation; meaning a consumer has less protection if something goes wrong. The FCA is continuing to introduce more measures to protect consumers, and the government intends for the FCA to regulate more BNPL agreements in the future.

These kinds of agreements can be attractive to consumers, with the main benefit being that it spreads cost. However, opponents of the model claim that having no immediate barrier to purchase increases the likelihood of over-spending, particularly on more expensive impulse purchases and particularly amongst those with neurodivergent conditions that may make financial planning more difficult. Care should be taken and affordability checked when considering this as a method of payment. One helpful hint is; before check out online, try to leave it an hour or so. This can then give you time to think ‘do I actually need this and can I afford this?’.

Whilst BNPLs can be useful in some circumstances, there is concern within the debt advice sector about the increased use of the agreements. With the rising cost of living, there is evidence that consumers are turning to these kinds of agreements to pay for essentials; such as the weekly food shopping, which could be masking an underlying financial problem.

Another potential concern is that BNPL providers recently announced that payments will be reported on someone’s credit file. Whilst, those entries do not currently impact a person’s credit score, this is expected to change in the future.

Anyone who is struggling with their BNPL agreements is advised to speak to the provider and let them know they are in difficulty. The provider should consider your circumstances and may be able to offer short-term assistance such as a payment holiday. Those who cannot get help from the provider, or have other debts they are struggling with, should contact a debt charity to look at their options in dealing with the situation as a whole.