As the higher cost of living has continued to stretch household budgets, the flexibility for consumers of buy now pay later (BNPL) deals has become increasingly attractive.

Recent research carried out by the Financial Conduct Authority (FCA) last October,  found that around 27% of UK adults has turned to BNPL in the six months to January last year.

This was a significant 17% higher than for the 12 month up to May 2022.

If you are looking to buy an item using BNPL there are plenty of issues to consider,  alongside potential pitfalls over failing to make  payments.

It’s also important to remember that BNPL is a way of borrowing so its best to ensure that you have a repayment plan in place.


The pros of BNPL deals

The one obvious benefit of BNPL services is that buying any priced item is more manageable, as payments can be spread out into smaller amounts.

Payments are allowed over the course of weeks or even months depending on the terms and conditions from a BNPL provider.

For example with Klarna you can pay for your item in three instalments, where the first payment is made at the point of purchase, with the outstanding instalments to be made every 30 days.

Typically any purchase that is made through BNPL is interest free, so zero per cent financing is a draw.

Increasingly consumers are also able to use BNPL services in store as well as online if a  retailer is signed up to a BNPL provider in the same way that you are, details such as email addresses and phone numbers would need to be provided to confirm payment.

While it is probable that a credit check will be performed when applying for BNPL, it is not likely to be a rigorous assessment of your finances and will nor be viewed by other lenders.


The cons of BNPL deals

Of course there are downsides to this and make sure that you do not believe that this is easy money and any debt will have to be paid back, as the credit checks are softer you may be approved for BNPL without being able to afford it.

Yet some BNPL providers do go the full distance and proceed with a full examination of your finances, this can potentially lead to your credit score being damaged if for example a deadline payment is missed if it cannot be covered.

The lack of regulation over the BNPL sector is a concern, and its important to be  aware that any agreement that lasts a shorter period than 12 months is not regulated by the FCA.

This means that if there area any disputes over unfair treatment then there is no consumer protection in place.

If you make a BNPL payment with a credit card it means that you are not covered by section 75, which allows you to ask for a refund if there is a problem with an item that costs between £100 and 330,000 where you have paid by credit card.


What happens if you miss payments?

A penalty fee can be charged if repayments are missed, where potentially debt collections agencies can be called in, depending on the approach from a BNPL provider.

Some providers may try and work out an alternative repayment schedule, such as rolling on a payment over to the next instalment deadline.

That is why it is so important to fully check what the penalties are from providers.

Klarna will try on two occasions to take the first payment, if it cannot be covered it will be pushed back to over to the second instalment.

If after two more attempts on the second payment that the costs still cannot be met, then it will be rolled on to the final payment.

At that point if the payments can’t be made then the debt collection agency is called in.

There is also a risk of being banned from using Klarna if payments are missed.

Clearpay say that late fees will be charged, but late payments will also be capped to help people recover and get back on track.

While Laybuy will take a considered approach where the circumstances over late payments will be taken into account, and look to find a solution by determining what payments can be made in the meantime.

If the situation continues for an unspecified period of time, then debt agencies are brought in.

More positively Paypal have a Buy now and Pay in 3 offer to consumers, and it makes it clear that there are no late fees involved if payments are missed.