Buy now pay later

This fact sheet tells you how to deal with the common problems that often occur with buy now pay later debt. Use this fact sheet to:

• find out the risks of using buy now pay later;
• help you stop a continuous payment authority;
• find out alternatives to buy now pay later; and
• help you make a complaint.

What is buy now pay later?

Buy now pay later (BNPL) has become a very popular way for people to pay for items. You will see it as an option when you buy most things online. It allows you to buy an item straight away, but delay payment of the item until a later date. You may be expected to pay the money back in one go, or you may be allowed to pay for the item in several instalments, usually spreading the payment over three months or more.

Potential risks

While delaying the payment of an item may be useful in some situations, you need to be careful when deciding to choose BNPL to pay for an item.

• There is a risk that you may be tempted to purchase an item which would otherwise be unaffordable. You are also more likely to spend more, thinking you’ll be fine paying it back in the future.
• You may be tempted to use BNPL to pay for essential items such as groceries, clothes or toiletries. This may disguise that you are struggling to afford your essential costs and need debt advice.
• Spreading the repayments may be tempting. However, the debts will need to be repaid. You need to consider that if you can’t afford to pay for the item now, you probably won’t be able to in the future either.
• If you can’t pay the BNPL agreement on time, charges for late payment can increase the amount you owe.

Before using BNPL to buy an item, think about whether you can afford it and whether it is essential. If it’s not essential, it may be better to wait until you can afford it to avoid getting into debt.

If you are using BNPL to pay for everyday items like food, clothes or energy bills, it may be that you do not have enough income to pay for all your current outgoings. See the What to do if I can’t pay my BNPL section if you find you are becoming reliant on BNPL, or you cannot afford the repayments.

Types of BNPL

Short-term BNPL

When you purchase an item online, you are usually given the option to pay for the item after 30 days, or over a period of three or four months. Klarna and Clearpay are 2 of the main short- term BNPL providers that offer this payment option. Be aware of the following.

• The BNPL provider will usually carry out a ‘soft’ credit check only. This means they are not checking your ability to repay the debt and you may be more likely to take out more lending than you can afford.
• Research has shown that people are more likely to spend more money than they would normally if they are delaying the repayment of the debt.
• You will not be protected by Financial Conduct Authority (FCA) regulations. See the Financial Conduct Authority regulations section below for more information.
• If you miss a payment, this will be added to your next scheduled payment and missed payments can be shared with credit reference agencies.
• No interest will usually be added to the account.
• Each time you buy an item through BNPL you are taking on a new debt that will need to be repaid at some point in the future.

Longer-term BNPL

This will usually be for more expensive purchases, and you will be offered the chance to pay after a period of time, usually 6 or more months.

• There may be a charge for using this type of BNPL.
• Research has shown that people are more likely to spend more money than they would normally if they are delaying the repayment of the debt.
• Each time you buy an item through BNPL you are taking on a new debt that will need to be repaid at some point in the future.
• There is likely to be an interest-free period in which you need to repay the BNPL balance before interest is added. See the Interest and charges section for more information.
• The amount owed can increase significantly if the balance is not repaid during the interest-free period.
• You will be protected by Financial Conduct Authority (FCA) regulations. See the Financial Conduct Authority regulations section below for more information.

Interest and charges

Short term BNPL agreements (paid back in 30 days, or less than 4 monthly payments) will usually be interest free. You should check with the BNPL provider to be sure.

Most short term BNPL agreements charge late payment fees. You’ll need to check your agreement to find these out. For example :

• Klarna will add a £5 late payment fee for any payments made more than seven days after the due date, though this is currently capped at two late payment fees per order; and
• Clearpay will add a late repayment fee of £6 for each late instalment and a further £6 if the payment is still outstanding seven days later. These charges will be capped based on how much you’ve borrowed. Check your agreement for clarification on this. If you have several BNPL agreements that you struggle to repay, the risk of charges substantially increasing your debt level is very real.

You’ll need to check your agreement, but longer term BNPL agreements will usually allow interest and charges to be added to your BNPL account.

It is important to be aware of the annual percentage rate (APR) that you may be charged, as this can be high compared to the APR for loans and credit cards from high street banks. APR is the total cost of the borrowing over a year.

It is likely that these agreements will have an interest-free period, usually 6 or 12 months. If you repay the total amount owed within the interest-free period, then no interest should be added. However, if you don’t pay the amount owed within the interest-free period, interest will be added to the balance owed. Depending on the nature of the agreement you have signed, the interest may be backdated to the start of the agreement.

If you are unable to clear the balance within the interest-free period, you may end up paying a lot more for the item you’ve purchased than if you’d bought it outright. You’ll also need to make monthly repayments and the balance will continue to accrue interest until it is paid in full.

Credit reference file

Most BNPL companies now report information to credit reference agencies. This will include how you are managing the account(s). If you fall behind with your payments on a BPNL agreement, this can be recorded. If you fall behind with your payments for 90 days or more, the account may be reported as ‘defaulted’. A defaulted account will stay on your credit report for six years. For more information about your credit file, see our Credit reference agencies fact sheet.

Financial Conduct Authority regulation

Most BNPL agreements are not regulated by the Financial Conduct Authority (FCA), this means that you won’t benefit from the consumer protections you get when borrowing money from most other types of creditors. You should check with your BNPL lender, but generally:

• agreements that are paid back in four instalments or less and do not add interest/significant charges will not be regulated; and
• agreements that are paid back in more than four instalments or do have interest/significant charges added will be regulated.

If the agreement is unregulated, it means that the BNPL provider will not usually carry out a full affordability check. This may make it more likely that you could borrow too much.

If your BNPL debt isn’t regulated by the FCA, you have fewer options if you need to make a complaint. You can’t escalate a complaint to the Financial Ombudsman Service. See the BNPL Complaints section for more information.

You also don’t have the same ‘section 75’ protections that you have with a purchase on a credit card. Section 75 can, in some situations, make the creditor legally responsible if there is a problem with your purchase. The MoneySavingExpert website has more information on the benefits of section 75 protection.

Continuous payment authority

When you purchase an item on BNPL, you will usually give the creditor your card details and set up a recurring payment called a ‘continuous payment authority' (CPA). This will allow the BNPL provider to take repayments from your card on an agreed date. If the money is not in your account to repay the amount required, the BNPL provider can try again later. The creditor taking this money may mean you don’t have enough money to pay your essential bills.

There has been a lot of confusion about CPAs and the right to cancel them. If you have agreed to repay your BNPL agreement this way and are unable to afford the payment, you can take action to stop the payment being taken.

Contact the BNPL company

Write to, or email, the BNPL provider to tell them you are withdrawing your permission for money to be taken from your card. See the sample letter Withdraw your continuous payment authority from buy now pay later company.

If you withdraw your continuous payment authority and the money is still taken from your account, this is an ‘unauthorised transaction’. Your card issuer should give you a refund. This should include any interest or charges added to your account because the payment was taken.

If your BNPL is FCA regulated, the FCA's Consumer Credit sourcebook (7.6.12) states that, where a customer is in financial difficulties, a firm must not request payment on a continuous payment authority more than twice on the same agreement once it has already been refused. If you later agree that more payments can be requested, this rule does not apply.

Stopping payments to the BNPL company may help you pay your essential bills and living costs, but it does not mean you no longer owe the money. You need to get full advice on how to deal with the debt in the long term. See the What to do if I can’t afford to pay my BNPL section.

Contact your bank

If you are finding it difficult to contact the BNPL provider, for example, because they are an online company, contact your card issuer. See the sample letter Withdraw your continuous payment authority from your card issuer. Your bank should stop the payment (or payments) being taken, even if you haven’t told the BNPL company.

The FCA website confirms that you have a right to cancel the CPA.

“In most cases, you should be able to cancel by contacting the company taking the payment and asking it to stop. However, you do have the right to cancel directly with your card issuer. Once you have done this, it must stop payments immediately – it cannot insist that you agree this with the company taking the payment first.”

What to do if I can’t afford to pay my BNPL

BNPL debts are non-priority debts. If you are struggling financially, you should always pay your essential costs first, such as your mortgage or rent, gas, electricity and food.

Cancel the continuous payment authority you have set up. This avoids money being taken that you need to pay for essential items. See the Continuous payment authority section for more information on doing this.

Filling in your budget is the starting point for dealing with your debts. We know that when you are struggling with debt, the thought of writing down your income and outgoings might feel like the last thing you want to do. But doing a budget might be easier than you think.

Go to My Budget to complete your budget and explore what options you may have. You won't be able to choose a solution to deal with your debts without a budget.

Your budget will show how much money is left over after you have paid for all of your essential costs of living. This doesn’t include payments towards arrears on bills, BNPL debts or credit debts.

See our Making the most of your money fact sheet for ways of cutting your costs.

Alternatives to BNPL

You may have used BNPL, or be thinking about it, because you are finding it difficult to manage. Lots of people get into debt because they are not getting all the help to which they are entitled. We’ve outlined some possible help below.

Food

If you are struggling to afford to buy food from the supermarket, don’t be embarrassed to get food from elsewhere. Doing this could free up money to pay for other essential items. Many people get help with their food through charitable organisations that provide valuable support.

Trussell Trust food banks can give you a minimum of three days' food in an emergency. You will need to obtain a voucher first. You can get vouchers from various places, such as a doctor or health visitor. Some Jobcentres, councils and local Citizens Advice also provide vouchers. You can contact your local Trussell Trust food bank to find a full list of who gives out vouchers locally. For information about your nearest food bank, go to the Trussell Trust website or contact us for advice.

Clothing

It is usually cheaper to buy second hand clothes. You can get second hand clothes through a variety of places, such as charity shops, car boot sales and eBay. There are also apps such as Vinted and Depop that you can use to buy second hand clothes. You’ll need a smart phone for these apps. You may be able to get free clothing through Freecycle or Freegle. People offer various items, including clothes through these websites. You can reply and arrange collection.

Benefits

Which benefits you may be entitled to, will depend on your circumstances. Use an online benefits checker, for example, the Benefits Calculator on the Turn2us website www.turn2us.org.uk.

Local council

Some councils have a welfare assistance scheme which can help if you are in an emergency situation. Individual councils decide on the rules for their scheme. Contact your local council to see whether they run a welfare assistance scheme and what it offers.

Government help

You can apply for help with funeral or maternity costs, cold weather and winter fuel payments and in some cases, budgeting loans. If you are on Universal Credit, you can apply for a budgeting advance instead of a budgeting loan. There are rules about who can apply. Contact us for advice.

Credit unions

If you have a local credit union, you may be able to get a loan from them. Usually, but not always, they give loans if you have saved a certain amount with them first. You can search for a credit union near you at www.abcul.org.

Charitable grants

Turn2us can search over 1,400 charitable grants for you. Use the Turn2us Grants Search tool to find charitable organisations that might be able to help you. Go to https://grants-search.turn2us.org.uk. It takes less than five minutes on average.

See our Help from charitable organisations fact sheet for more information along with tips on applying for a grant. If you need money for furniture or white goods, see if there is a recycling project near you. For furniture, electrical items and white goods, try Fair for You's website www.fairforyou.co.uk. Your local advice agency, for example your Citizens Advice Bureau, should also have details of furniture and white goods schemes in your local area.

Our Making the most of your money fact sheet has lots more information about trying to save money.

BNPL complaints

Complaint to your BNPL lender

If you are unhappy with the service provided by a BNPL provider you can complain. Ask them about their complaint’s procedure. Make your complaint to the BNPL company. Resolver is an independent and free service that can help you do this.

If your complaint relates to a short-term BNPL debt, and you aren’t happy with the response, it’s likely you’ll need to escalate the complaint internally. Each BNPL provider will have its own process, so you’ll need to clarify this with them.

The Financial Ombudsman Service (FOS) will not get involved in complaints for this type of agreement.

If the debt is a longer term BNPL agreement and you aren’t happy with the response to your complaint, or you’ve not had a response after eight weeks, you can escalate your complaint to the FOS.

Complaint to the Financial Ombudsman Service

You can only use the Financial Ombudsman Service (FOS) if your BNPL agreement is regulated by the FCA. See the Financial Conduct Authority regulation section earlier in this fact sheet.

If you have made a complaint to your bank or BNPL lender and you are not happy with the response, you can ask the FOS to investigate. The FOS plays a very important part in complaints. It does not have the power to fine or punish businesses, but it can help settle disputes between businesses and consumers. The FOS can look into your complaint and can award compensation to you.

You have six months from the date of the final response from your lender to take your complaint to the FOS. Your bank or lender should tell you when their response is final. It may be their only response to your complaint. If you are not sure, ask them. If you do not complain to the FOS within six months, they may not be able to help. Time limits may also apply if what you are complaining about happened some time ago. Contact us for advice.

The FOS cannot help with all complaints. You will need to speak to them by phone or fill out their complaints form to see if they can help. See Useful contacts below.

Useful Contacts

Clearpay Contact form

Financial Ombudsman Service Phone: 0800 023 4567 or 0300 123 9123 www.financial-ombudsman.org.uk

Klarna Phone: 0808 189 3333 Webchat Contact form

Resolver www.resolver.co.uk

Turn2us https://www.turn2us.org.uk/