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Buy now pay later: what is it and how does it work?

Buy now pay later (BNPL) services are designed to help people pay for items when they can’t initially pay the whole sum.

While these services say they help people pay for their items flexibly, they aren’t free from criticism.

With almost 8 million Brits owing money on a pay-later basis, we give you the lowdown on what these services are, how they work, why they’re controversial and whether you should be using them at all. 

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What is buy now pay later and how does it work? 

BNPL services, such as Klarna and Clearpay, are designed to help consumers buy items they can’t afford to pay for immediately or in one go.

BNPL providers offer consumers a few different ways to pay for their items that can range from an initial down payment followed by smaller payments every two weeks, interest-free instalments over a period of months or simply paying the bulk sum within 30 days of the purchase.  

BNPL providers say that their services help people make flexible repayments. But the fast growth of providers is creating cause for concern.

With as many as 8 million Brits already owing money due to BNPL, they are attracting lots of criticism.    

Why is BNPL controversial? 

In a nutshell, BNPL services make things look cheaper.

Whether you’re buying a holiday package, a laptop or a new shirt, these services make you think you’ll be paying less, when in reality you could end up paying more.  

Providers apply late fees on each item, which can often result in people paying a lot more than the advertised price.

Let’s take the example of somebody spending £100 on three items in an IT store. They decide to break the transaction into three payments but miss the final repayment. Assuming that a BNPL provider charges late fees of £5 per late payment per item, a £100 shop becomes £115. 

BNPL services are helpful to the extent that it could allow consumers to break up payments, but they would be of little use to any business if that was all they did.

These services and providers wouldn’t exist if they didn’t make money, which is why building a business around late fees is so controversial.   

This isn’t always a problem though.

Paying in instalments is how credit cards work and for individuals who are good with their money, know how to budget, know how make repayments and have the income to do so, buying now and paying later won’t necessarily create issues.

But these services can often be found on retail and fashion websites, where young people who aren’t as knowledgeable with their finances will regularly shop.

And though the Financial Conduct Authority (FCA) has stepped in to curb some of the excesses of BNPL services on sites targeted at young people, they can still cause problems.   

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Should you use BNPL?  

Whether or not you should use BNPL comes down to your own personal circumstances.

Many people will be able to pay in instalments perfectly well, while using BNPL could be problematic for many others.

Ask yourself: 

Can you really afford the item?

BNPL often make certain products look cheaper than they are because they break the full retail price down into different segments, but it’s important to remember than not only will you still be paying the full price, you could accidently end up paying more.

If you really can’t afford it, you need to walk away.  

Do I understand how late fees and interest work?

It’s not common for BNPL providers to apply interest on their most popular repayment methods, but if you can’t keep up with repayment, some providers will start applying interest and fees.

Make sure you understand how interest is calculated so you’re making the most informed decision possible.  

Do I have a repayment plan? 

£25 paid every month doesn’t sound a lot. The problem is that nobody can really predict what their circumstances will be in the future. If you lost your job next week, continued repayments could quickly drain your finances.

Do you have savings to help you keep up and to plug any shortfalls? 

What about my credit score?

If you miss a repayment, your credit score will be affected, so if you’re not sure about making future repayments and want to keep your credit history clean, it might be better to stay away this time.  

What are the alternatives to BNPL? 

From inflation to a rising cost of living and ongoing supply chain problems, British consumers are feeling the squeeze.

With everything getting more expensive and the Bank of England trying to encourage us to save more, it’s worth considering what some of the alternatives to buying now and paying later are.  

Find a different way of breaking up payments

BNPL isn’t the only way of breaking your payments into instalments.

While it is convenient being offered the option while you’re shopping around, don’t let convenience make a decision for you.

Have you considered 0% purchase credit cards or overdrafts?

If you’re confident in your ability to repay, you may be able to avoid racking up late fees altogether by paying in this way. 


Interest rates are going up, meaning saving money – rather than spending it – is becoming a more rewarding way of using your money.

Ask yourself if you really need the purchase or whether saving your money for a rainy day might be a more prudent option.  

Budget wisely

Budgeting wisely can not only help you plan for your financial goals, but it could also help you afford more expensive things.

Rather than using BNPL to finance your purchases, why not plan out a budget effectively by assessing your income and outgoings and saving enough money to make purchases outright in the future?  

Buying now and paying later isn’t always a bad thing but plan your finances wrong and you could find yourself spending more money than you bargained for.

Make sure you’re in the know with a financial adviser who can help you take control of your money.

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About the author
Kate has written for leading publications and blue chip companies over the last 20 years.