What is Buy Now Pay Later?

How Does Buy Now Pay Later Work? BNPL Explained

Buy Now Pay Later (BNPL) has evolved from a niche checkout option to a mainstream form of borrowing used across many industries, from clothes retailers to takeaway meals.

The FCA’s Financial Lives data found that 20% of UK adults, around 10.9 million people, used BNPL at least once in the 12 months leading up to May 2024. That’s up from 17%, or 8.8 million adults, in 2022.

The FCA also says the BNPL market grew from £60 million in 2017 to over £13 billion in 2024. As the market grew, concerns were raised about whether consumers were receiving enough information and whether some borrowing was affordable. New FCA rules for Deferred Payment Credit took effect from 15 July 2026.

What is Buy Now Pay Later

The FCA now commonly refers to the regulated interest-free form of BNPL as Deferred Payment Credit (DPC). Regulated DPC is interest-free, repayable in 12 or fewer instalments over a period of 12 months or less. Typical examples include splitting a purchase into several payments or delaying payment until a later date.

BNPL is normally used for a specific purchase, unlike a personal loan where cash is borrowed directly.

Despite often being interest-free, BNPL is still credit. Like any form of borrowing, it is important to make sure the repayments fit comfortably within your budget.

How Common is BNPL?

As mentioned above, 20% of UK adults, around 10.9 million people, used BNPL at least once in the 12 months to May 2024.

Usage was particularly high among 25–34-year-olds at 30%, adults with low financial resilience at 30%, and adults living in the most deprived areas of the UK at 29%.

Most people used BNPL relatively infrequently. 20% used it once and 44% used it between two and four times. However, 17% of BNPL users, around 1.9 million adults, used it 10 or more times during the year, up from 14%, or 1.2 million people, in 2022.

Among frequent users, 76% were women, 67% had personal incomes below £30,000, 54% had low financial resilience and 26% had missed domestic bills and/or credit commitments in at least three of the previous six months.

BNPL is clearly mainstream and most people use it occasionally. However, there is also a significant group using it regularly, and that group shows more signs of financial pressure.

Who Uses BNPL?

In July 2025, the FCA published Occasional Paper 69, using data from the UK’s four largest BNPL providers at the time of analysis.

The research found that BNPL users were, on average, younger, had lower creditworthiness, carried higher levels of unsecured debt and were more likely to be in financial difficulty than the wider UK population.

It also found that BNPL users were almost twice as likely to be in serious financial distress compared with the wider UK population.

This does not mean that everyone who uses BNPL is in financial difficulty, or that BNPL itself causes financial distress. It simply shows that BNPL users are, on average, more financially vulnerable than the wider population.

Can BNPL Become Difficult to Manage?

BNPL can help consumers manage cash flow and spread the cost of purchases when repayments are affordable. The FCA itself recognises that BNPL can play a useful role in helping people smooth their finances.

Problems can arise when several agreements overlap, leaving multiple repayments due on different dates. The risk is often not one BNPL purchase in isolation, but losing sight of the combined total of all your commitments.

For example, one £30 payment at the end of the month may be easy to remember. But a £30 payment on the 29th, £25 on the 14th and £45 on the 7th means £100 of repayments spread across three different dates.

The important thing is to understand the total amount you have committed to repay, not just each individual instalment.

Does BNPL Cause More Debt?

Occasional Paper 69 found some evidence that BNPL borrowing modestly increases the chance of future missed payments on BNPL itself.

However, it found no consistent evidence that BNPL borrowing causes medium-term indebtedness on other credit products, higher missed-payment rates on other credit products, or financial distress.

In simple terms, BNPL users are more financially vulnerable on average, but the evidence does not support saying that BNPL itself is the main cause.

What Changed With BNPL Regulation in 2026?

FCA regulation of third-party Deferred Payment Credit began on 15 July 2026. Lenders now need FCA authorisation or temporary permission to enter into new regulated DPC agreements.

The new rules require lenders to provide clear information before customers borrow, carry out proportionate affordability checks, lend responsibly and support customers experiencing financial difficulty.

Consumers should also receive clear information about repayment dates, repayment amounts and what happens if a payment is missed. Eligible complaints can now be taken to the Financial Ombudsman Service.

Does All BNPL Now Have FCA Protection?

No. The new rules mainly apply to third-party DPC, where the lender and the retailer are different businesses.

Credit provided directly by the retailer, sometimes referred to as merchant-own credit, generally remains outside these rules. Agreements entered into before 15 July 2026 also remain under the previous regime.

This means consumers should not assume every “pay later” option has exactly the same protections.

Does BNPL Affect Your Credit File?

BNPL is a form of credit, and providers may use credit information when carrying out affordability and creditworthiness checks.

Missed payments can also affect your credit file depending on the provider and agreement. Understanding how your credit score and credit report work can help you see how borrowing and repayments may affect future credit applications.

What Should You Check Before Using BNPL?

• Total repayment amount
• Number of payments
• Exact repayment dates
• Any overlapping BNPL agreements
• Whether you could still afford the repayments if another unexpected bill came up
• Any late-payment or additional fees
• Whether the lender is FCA-regulated
• Whether you are using BNPL for convenience, or because you cannot currently afford the purchase
• Whether delaying the purchase would avoid adding another repayment commitment
• The important question isn’t usually whether one instalment is affordable, but whether all of your commitments together are affordable.

Is BNPL Better Than Other Types of Borrowing?

Many BNPL products are interest-free, which can make them cheaper than interest-charging credit when repayments are made as agreed.

However, BNPL normally finances a specific purchase, while personal loans, credit union loans and high-cost short-term credit work in different ways, with different costs and repayment structures.

What if You’re Struggling With BNPL Payments?

If you are finding it difficult to repay one or more BNPL agreements, contact the lender as early as possible rather than simply missing repayments.

FCA-regulated DPC lenders now have responsibilities to support customers experiencing financial difficulty and, where appropriate, direct them towards free debt advice.

Free guidance and debt advice is also available through MoneyHelper.