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  • Shop Now, Stress Later; revealing the cost of Buy Now, Pay Later schemes

Shop Now, Stress Later

Last year, we revealed how the popularity of Buy Now, Pay Later (BNPL) schemes could be tempting young shoppers into taking on unsustainable levels of debt. One year on and consumers’ love affair with eCommerce shows no sign of slowing down anytime soon. So what does the surge in online shopping mean for the Generation Debt Trap?

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Shop Now, Stress Later

Personal finance experts have criticised the £2.7bn BNPL industry for its role in normalising borrowing and overspending. These businesses have boomed during the global pandemic as more and more customers have turned to shopping online. 

However, the financial pressures of COVID-19 have also contributed to their growth as consumers have turned to BNPL services in an effort to make ends meet. In fact, research found that the global number of BNPL users will exceed 1.5 billion transactions in 2026, from 340 million in 2021

Almost a year on from the first ‘Shop Now, Stress Later Report’ the personal finance experts at money.co.uk have crunched the numbers to find out if the British public is still spending now, and worrying about the consequences later.

Choosing a 0 interest credit card could save you money on purchases you make, by offering a long interest free period and low APR.

Does this ‘new way to pay’ normalise reckless spending? 

We asked more than 2,000 shoppers* to tell us about their experiences when using BNPL services like Klarna, Clearpay and Laybuy. We compared the results to our findings from last year, and the comparisons make for alarming reading. 

Clearpay and Klarna among top five most-used BNPL schemes in 2021

During the pandemic, the use of BNPL schemes exploded. An investigation by the Financial Conduct Authority's (FCA) found that usage had nearly quadrupled to account for £2.7bn of spending in 2020.

But which of the individual BNPL platforms have consumers turned to the most?

Updated 7 July 2021
BNPL provider20202021Year-on-year change
Clearpay16%25%+47%
Klarna24%36%+40%
Laybuy5%7%+47%
Openpay6%8%+29%
Payl8r5%4%-10%
PayPal Credit73%65%-17%
Zilch3%7%+113%
Zip4%6%+40%

Klarna, Clearpay and Laybuy are also among the sector’s fastest growing service providers. Klarna users increased by two-fifths (40.5%) and Clearpay by almost 50%. 

Serial returners are buying now and worrying later with payment-spreading platforms

Just under one in five consumers (19%) revealed that they see payment-spreading platforms as a way to buy now and worry later, using BNPL to buy items and then return them without the cash ever leaving their account. Millennial and Gen Z shoppers are the most prolific returners; more than half (55%) of those aged between 18 and 34 admit to buying with the intention of returning. 

However, worryingly our analysis showed that one-in-six shoppers (16%) admitted to using BNPL to fund their purchases because they got carried away and purchased more than they could afford.

Buy Now Pay Later vs Credit Cards - Influencers are guiding the spending choices of young shoppers more than ever before

With pastel-hued marketing messages highlighting the flexibility of BNPL (alongside a promise of no added interest, fees or late charges) is it any wonder that younger shoppers are being tempted into risky forms of debt such as BNPL?

Our research found that over one in eight (13%) of those aged 18-24 said that influencers played a part in their decision to shop now and pay later. This figure is up by a quarter (+26%) when compared to the data from 2020. 

Proving that the marketing tactics employed by these brands are working on younger shoppers, our research went on to reveal that in 2021, those aged 18-24 are more likely to use online payment-spreading schemes (54%), than a credit card (49%). 

In January this year, the Bank of England’s regular consumer credit report echoed this. The report found that credit card borrowing was down 14.5% (a new record low) on the previous year. Even though COVID-19 is thought to have made a significant impact, their report shows that younger people are turning to other funding sources. 

In March, a report published by the Telegraph found that one in every 25 credit card transactions is being used to pay off buy now, pay later debt. The report indicates that 4% of all credit card transactions among its customers aged 18 to 24 were being used to pay down risky BNPL debt. 

Meanwhile the FCA in their Financial Lives Survey found that informal borrowing from friends and family was on the increase among young adults aged 18-24. Of this group, 19% borrowed from friends and family which is up from 12% in 2017.

And it is not just young shoppers being influenced by BNPL marketing...

In 2020, we found that one-in-twenty (5%) consumers said they had used BNPL services based on a recommendation from an influencer. Fast forward to 2021 however, and that figure has increased to one-in-twelve (8%) - a year-on-year increase of 42%. 

With adverts involving high profile figures such as Love Island presenter Laura Whitmore, who fronted a campaign for Laybuy, there is genuine concern about consumers being misled. Last December an Instagram influencer advert from Klarna was banned by the Advertising Standards Authority (ASA), who upheld a complaint that the company’s adverts encouraged ‘spending on non-essentials during the pandemic’.

Unlike other financial products that require promoters to detail potential risks or consequences, the BNPL industry isn’t currently regulated by the FCA, so campaigns don’t have to include the kind of ‘risk wording’ you’d normally hear at the end of a credit card ad. 

However, with billions of pounds now being borrowed each year in the unregulated BNPL market, the Treasury has said the Financial Conduct Authority will take over regulation of the sector later this year. 

Buy Now Pay Later vs Credit Cards - how do credit checks work?

Currently, BNPL platforms only perform a soft credit check which isn’t visible to other lenders; including other buy-now-pay-later companies. This means a consumer could make use of multiple BNPL platforms at the same time and land themselves in considerable debt.  

Unlike credit card companies, this form of buy-now-pay-later is currently not governed by affordability checks the way credit card borrowing is, which means that the burden falls on you, the customer, to manage the amount you borrow to ensure that you can afford to pay it off.

With only soft limits placed on the amount you can borrow and the number of providers you can borrow from, shoppers can very quickly end up in a debt spiral that can be hard to get themselves out of.

Traditional credit cards also offer an interest-free period that can more than match the ones on offer through providers of BNPL services. That’s because for the vast majority of spending credit cards offer a ‘grace’ period of up to 56 days between purchases being made and interest being charged.

This is far longer than the “pay later” options on BNPL services and remarkably close to 60 days on offer with “pay in three” services. 

The biggest difference, in fact, is what happens at the end. While failing to clear your balance with a BNPL service results in warnings, on a traditional card interest could be due on any of the balance you haven’t cleared. 

Missing a payment also has more consequences on a traditional card, with unfulfilled bills leaving black marks on credit reports that many BNPL services won’t. Of course, that cuts both ways. Meeting payments on time with a traditional card can increase your credit score, but has no impact with many BNPL services.

There is also added flexibility with traditional cards, which allow you to pay off anything from the minimum payment (as little as 1% of your outstanding balance) to the full amount, while BNPL services tend to be far more proscriptive. 

Buy Now, Pay Later vs 0% Credit Cards - how are they different?

Whichever way you look at it, BNPL is a form of credit but with currently less formal regulation, these platforms forfeit the protection offered by traditional credit cards, such as Section 75 rules. 

Section 75 of the Consumer Credit Act means your credit card provider protects any purchases worth between £100 and £30,000, so if there’s a problem you could get your money back from your card provider as well as the retailer. Right now, purchases made via BNPL wouldn't have this protection.  

The table below highlights the differences between the two: 

*Once BNPL platforms become regulated by the FCA, users will then be able to complain to the ombudsman.

**Once BNPL platforms become regulated by the FCA, more affordability checks will be needed which could mean slower access to credit. 

Buy Now, Pay Later debt takes nine months to pay off

Klarna, ClearPay and Laybuy model themselves on providing a 30 to 90 day repayment window, but our research found that the average consumer could take up to eight times longer than that to clear what they owe. 

We asked our respondents to tell us how much they owed to each BNPL platform, and more importantly, how long they estimated it would take them to clear their debt.

Their responses showed that in 2021, the average amount owed per person is £244.37. That’s 7% more than the £232.29 they owed in 2020. What’s more, our analysis showed that the average time the shoppers we surveyed say it will take them to clear their debts is now nine months, well in excess of the 30-day or 60-day windows that BNPL schemes are based on. 

Updated 29 July 2021
BNPL provider20202021Year-on-year changeTime to pay in 2021 (months)
Clearpay£170.79£158.99▼ -7%5
Klarna£138.7£143.8▲ 4%5
Laybuy£314.29£271.34▼ -14%13
Openpay£281.32£274.03▼ -3%10
Payl8r£248.14£347.86▲ 40%10
PayPal Credit£164.27£200.74▲ 22%8
Zilch£308.44£253.77▼ -18%9
Zip£232.37£304.41▲ 31%14
Average£232.29£244.37▲ 7%9

Based on answers provided by 2,025 people we surveyed in June 2021.

Payl8r (40%), Zip (31%) and PayPal Credit (22%) all saw the largest increase in customer debt in the past 12 months. Elsewhere customers’ debt with industry-leader Klarna increased by 4% to £143.80, which consumers estimate will take five months to clear. 

That five months looks short compared to the time it will take consumers to clear their debt on some of the other leading BNPL platforms. Our research showed that shoppers who use LayBuy, will take more than a year (13 months) to clear the £271.34 they owe. While Zip users are even less confident in their ability to pay off their debts, suggesting that it will take an average of 14 months to clear their balance with the provider. 

Terms and Conditions vs Reality

With some BNPL debt taking users more than a year to clear, we thought we’d take a look at the terms and conditions of each payment-spreading platform to understand just how much longer the average consumer takes to pay back what they owe. 

On average, the BNPL platforms expect payment after 49 days (depending on the individual 0% interest repayment product), but our research reveals that the average consumer takes 261 days to pay, that’s 186 extra days in debt. 

Updated 7 July 2021
ProviderHow many instalments?Official repayment time limitAverage time to Pay (Days)Extra days in debt
Klarna360 days after purchase152 days after purchase92
Clearpay442 days after purchase152 days after purchase110
Laybuy635 days after purchase395 days after purchase360
PayPal360 days after purchase243 days after purchase183
Average49 days after purchase261 days after purchase186

Even though the terms and conditions say you should pay in 30 days, the reality is far from the truth, particularly for Clearpay where we estimate users will spend 110 days in debt, and Laybuy user spends almost a year (360 days) before their balance is cleared.

Consumer confidence: one-in-twelve Klarna users lacks confidence that they can pay what they owe in in 30 days

Recent research has found that the pandemic has hit UK households harder than any other country in Europe when it comes to their finances. With consumers feeling the effect of COVID-19 on their pockets, it’s perhaps no surprise that more and more shoppers are turning to BNPL schemes to ease financial pressures. But what impact has this had on their ability to repay the money they’ve borrowed? 

When asked how confident they felt about their ability to repay what they owe to payment-spreading schemes, one-in-five (20%) of Laybuy and one in six (17%) of Clearpay users admitted that they weren’t confident that they would pay back the full amount on time. For Klarna that figure is one-in-twelve (8%). The figures make for worrying reading because, by their very nature, BNPL platforms can quickly become expensive if customers don’t make their repayments on time.  

Consumer confidence: one-in-twelve Klarna users lacks confidence that they can pay what they owe in in 30 days

Recent research has found that the pandemic has hit UK households harder than any other country in Europe when it comes to their finances. With consumers feeling the effect of COVID-19 on their pockets, it’s perhaps no surprise that more and more shoppers are turning to BNPL schemes to ease financial pressures. But what impact has this had on their ability to repay the money they’ve borrowed? 

When asked how confident they felt about their ability to repay what they owe to payment-spreading schemes, one-in-five (20%) of Laybuy and one in six (17%) of Clearpay users admitted that they weren’t confident that they would pay back the full amount on time. For Klarna that figure is one-in-twelve (8%). The figures make for worrying reading because, by their very nature, BNPL platforms can quickly become expensive if customers don’t make their repayments on time.  

One-in-three BNPL users cite mental health as a top worry

With financial pressures from ongoing lockdowns and debts with lenders like BNPL platforms piling up, it’s perhaps no surprise to see that mental health (34.6%) and finances (30.67%) were among consumers’ most common concerns. 

The two issues are often interlinked, but over the past year the increased strain brought on by the COVID-19 pandemic and its impact on day-to-day life has led to increased feelings of loneliness, anxiety and depression. 

Anyone who is concerned about their mental health should speak to their GP to find out what support is available. Further information can also be found on the NHS website and from national charities such as:

  • The Mix: a UK-based charity that provides free, confidential support for young people under 25 via online, social and mobile.

  • Mind: a charity providing advice and support to empower anyone experiencing a mental health problem.

  • CALM: The Campaign Against Living Miserably (CALM) is leading a movement against suicide.

  • Rethink: the first UK-wide mental health and money advice service dedicated to supporting people affected by mental health and money issues.

  • PAPYRUS: the national charity dedicated to the prevention of young suicide.

Despite their financial worries however, it seems that there’s still a disconnect between consumers’ immediate issues and their long-term financial health. Interestingly, just 8% of BNPL users admitted to worrying about their credit score, which suggests that more needs to be done to provide clarity on the impact of BNPL debt on their wider financial profile. 

Updated 7 July 2021
Top worries for BNPL users2021
1Mental health35%
2Finances31%
3Family's health23%
4Physical health21%
5Relationship12%
6Education9%
7Credit score8%
8Friendships8%
Updated 7 July 2021
Top worries for BNPL users2020
1Finances36%
2Mental health31%
3Family's health29%
4Physical health23%
5Education11%
6Relationship10%
7Credit score8%
8Friendships7%

What are shoppers using BNPL for?

When asked what products or services they had purchased using a BNPL platform, more than a third of respondents said that casual wear was their main spend, followed by eating out and beauty products. 

Good value for money or a good way to get into debt?

When asked what attracted them to the Buy Now, Pay Later service, more than one-in-five (21%) of respondents said they believed it to be beneficial to their finances, and a quarter (25%) felt BNPL represented good value for money

One-in-three shoppers believe Buy Now, Pay Later can improve a poor credit score 

When asked about the impact of services like Klarna on their credit scores, one-in-three shoppers (29%) believe that by paying back what they owe on time will improve their credit scores. However, at the other end of the spectrum, just 6% believed it would have a negative effect. The truth however, is that because most BNPL providers don’t run hard credit checks, they don’t file on-time payments with credit reference agencies. That means that even if you do make payments on time, it won’t boost your credit score, and if you miss one it won’t be reported either.

That doesn’t mean it’s consequence free, however. Because credit reports aren’t the only thing lenders use when making decisions about whether to offer you a product.

Increasingly firms are using open banking to assess people’s spending habits and creditworthiness - while in the case of mortgages, banks simply ask to see your statements before making decisions.

Use of BNPL services is instantly visible on these - while missed payments are also simple to spot. Given things as straightforward as taking cash out twice on a night out have been seen as red flags by mortgage providers in the past, it’s not hard to imagine a scenario where frequent use of a BNPL service could see you turned down for a home loan.

Further information can be found in our how to improve your credit score guide.

BNPL Debt Map of the UK: 2021

Looking at the UK as a whole, Plymouth holds the title of the country’s most indepeted area with an average of £530.86 BNPL debt. Outside Devon’s biggest city, however, the BNPL Debt Map shows some increasing trends across the UK. 

There’s a clear North / South divide when it comes to BNPL debt with cities like Liverpool, Newcastle and Manchester making up three of the top five areas in terms of average arrears. 

Beyond the geographical divide, the data also suggests a worrying generational trend when it comes to BNPL borrowing. Indeed, of the 20 locations listed below the vast majority are known for their high student populations with cities like London, Leeds, Cardiff and Birmingham regularly ranking among the country’s most attractive universities. With average ages skewing lower as a result, the data reinforces the idea that BNPL platforms are creating a generational debt trap.

Buy Now Pay Later platforms regularly promote themselves as an alternative to credit cards. With easy-application processes and bold savings claims, it’s easy to see their appeal in the eyes of consumers. But the reality is that the savings offered by BNPL borrowing are at best negligible compared to traditional credit cards, and at worst could end up costing you far more in the long run. 

The problem with BNPL platforms is that they lock customers into rigid repayment schedules that offer little flexibility and large penalties for failing to meet debt deadlines. In comparison, if managed responsibility, credit cards offer far more flexibility. Using the right credit card lets you split payments over as long as 21 months currently, with almost no card charging you for the first 56 days or so.

What’s more, credit cards can also offer you cashback on purchases, loyalty points with major retailers, Avios or other travel perks and extra protection thanks to Section 75 of the Consumer Credit Act.

Our research suggests that young people in particular are turning to BNPL borrowing as an alternative to credit cards. But while the glitzy marketing campaigns for BNPL lenders might position them as attractive alternatives; in reality they are simply shifting consumer debt to platforms that offer less flexibility, support and protection for consumers. 

Thanks to their youthful marketing, minimal credit checks and easy sign-up process, more and more consumers are turning to BNPL to cover their debt. 

But it’s vital that consumers understand the risks involved with this kind of borrowing and act responsibly to ensure they don’t spend more than they can afford. If not, we could face a generational debt trap with large numbers of consumers trapped in a cycle of borrowing and repayment that they can’t get out of. 

Sue Anderson, Head of Media at StepChange comments on BNPL commented on our Shop Now, Stress Later report:

“While we wait for the proposals on how Buy Now Pay Later regulation will be implemented, we’d very much like to see retailers and  providers of these services putting in place clearer communication and stronger consumer protections – though we believe these cannot be left to chance, and need regulatory underpinning. It would be a good start to improve cancellation policies, and also not make BNPL an over-promoted option at checkout. Consumers must be put in full control of the services they use, and not put in a situation where they inadvertently find themselves acquiring debt that may cause them difficulty.”

Everything you need to know about Buy Now, Pay Later platforms

Millions of consumers across the UK are using Buy Now, Pay Later schemes to help spread the cost when shopping. But, the quick and easy sign up process, minimal credit checks and youthful marketing appeal could be causing shoppers to sign up and spend more than they can afford without understanding the full risk. 

Below, Salman Haqqi, personal finance expert at money.co.uk answers all of the burning questions about Buy Now, Pay Later services such as Klarna, Laybuy and Clearpay. 

How do buy now pay later services work?

Buy Now, Pay Later services allow shoppers to spread the cost when purchasing goods. Effectively, these services allow consumers to ‘try before they buy’ and those who are accepted can buy goods, try them at home, and return them without the money leaving their account. 

Are buy now, pay later services regulated? 

Right now, Buy Now, Pay Later services like Klarna are not regulated by the Financial Conduct Authority (FCA) which can be problematic. 

Any purchases made using services like Klarna wouldn’t be protected by Section 75 of the Consumer Credit Act, meaning that if you have any problems with the purchase you won’t be able to raise a complaint or dispute through the Financial Ombudsman

The Consumer Credit Act means that credit providers must offer free protection for purchases worth between £100 and £30,000. It’s an incredibly valuable reassurance, particularly when shopping for high-value items like holidays. 

However, BNPL services act as a ‘third-party’ between you and the retailer, and breaks the chain. So, if your goods don’t turn up or are faulty, it’s unlikely you’ll be able to pursue a refund through Section 75. 

Instead, you would complain directly to the BNPL provider. We found that all BNPL providers had a complaints section on their website, or within the app to allow users to complain or ask for help. 

What will happen when the Buy Now, Pay Later industry becomes regulated? 

Regulation of the Buy Now, Pay Later sector will be beneficial for consumers. Consumers using the services would have more rights, help, and support if something were to go wrong with a purchase. 

Currently, if there is a problem, then you wouldn’t be able to approach the ombudsman or benefit from any independent assistance to help you. 

Following a recent review, the FCA is planning to implement tougher rules to protect consumers from getting into financial difficulty. 

The rules will cover:  

  • Disclaimers or wording around marketing material used to advertise the services 

  • Stricter affordability checks on customers before being allowed to access credit

  • Rules will exist to protect the vulnerable and ensure they are treated fairly

  • Consumers will be able to escalate any complaints to the Financial Ombudsman Service 

How do I cancel or delete my BNPL account?

Before cancelling your accounts, you will need to ensure all of your payments are complete and your account is up to date. 

How to cancel or delete a Klarna account?

  • Browse to https://app.klarna.com/support on your browser or use the live chat feature on the app

  • Use the customer support page to start chatting with a representative.

  • Tell the customer support agent to delete your account.

How to cancel or delete a Clearpay account?

How to cancel or delete a Laybuy account?

  • Login to your account using this link 

  • Use this link to submit a request which contains the following information:

  • Full Name (as per Laybuy account)

  • Date of Birth

  • Residential address (as per Laybuy account & including country)

  • Reason for account closure

Can Klarna or services like it affect my credit score?

As with all lines of credit, the way you choose to pay can impact how it will affect your credit score. For example, Klarna offers a ‘pay in three’, ‘pay in 30 days’ or the option to spread the cost over a longer period, such as 6-36 months.

All options involve a “soft” check which allows lenders to see exactly what credit agreements or loans you have and (most importantly) if you have been keeping up with payments. This “soft” check is not visible to other lenders, although you might see it if you check your own report.

Klarna does not report ‘pay in three’ and ‘pay in 30 days’ purchases or payment information to credit reference agencies. 

Klarna financing options - letting you split payments between 6 and 36 months - however are reported to credit reference agencies in the same way traditional credit cards are. That means a hard application that’s visible to other lenders and black marks lowering your credit score for missed payments.

Can I use Buy Now, Pay Later apps like Klarna to improve my credit score?

Owing to the fact that most BNPL providers don’t run hard credit checks for many options, they don’t file on-time payments with credit reference agencies, meaning that even if you do make payments on time, it won’t boost your credit score.  

If you have poor credit and are looking for ways to build this up, then a credit builder credit card could be a good option. These cards are designed for those with bad credit to help you prove your ability to make regular payments, which is something mortgage lenders and banks look at when deciding on how much you can borrow. 

For further information, check out our guide on how to improve your credit score

Will apps like Clearpay, Laybuy and charge me a late fee for missed payments?

If you miss a repayment, your BNPL could charge you a late fee if there aren’t enough funds, and these late fees can soon mount up and in some cases can end up surpassing the cost of the product you’ve bought. 

Here are the late fees charged by some of the providers: 

Clearpay = £6

For orders under £24, this can only be charged once

For orders over £24 you can be charged this late fee continually, with a cap at 25% of the orders cost, or £36, whichever figure is lower. 

Laybuy = £6

This fee can be charged twice for each individual missed installment. So if you were late paying three installments consecutively, you could be charged £36, no matter what the original amount borrowed was. 

PayPal's 'Pay in 3' = £12

If you are late with a payment then you’ll be charged £12, which can be charged twice on each individual transaction. You wouldn’t be charged interest on these fees. 

Klarna = £0

For it’s 0% interest products, there are no late fees. So even if you were continually late paying, you wouldn’t incur any late fees. 

However, if you consistently miss payments, Klarna passes your debt on to a collection agency and will charge you to do this. Klarna has not stated what the fee will be for this, but customers have said they have been charged £12 when this happens. 

Three steps to deal with BNPL Debt

1. Make a budget

If you have different types of debt, the first thing you should do is make a budget and use the information within the budget to work out what your priority bills are first. If you’re not sure how to make a budget, then this guide from StepChange could be useful.  

2. Decide which of your bills to pay first

With so many bills being paid out each month, it can be tricky to know which ones to pay first, even once you have completed your budget. It’s important to know the difference between a priority bill and a non-priority debt. An example of a priority debt would be your rent or your mortgage, as the consequences of not paying that could mean you lose your home - this type of bill must be paid before any other debts. 

For more information on which debts to prioritise, this article on the StepChange website could help: What debts to pay first from your budget.

3. Dealing with BNPL debts 

If you have been using BNPL to make ends meet, then there is a helpful guide on the StepChange website on how to deal with BNPL debts which includes plenty of helpful advice and links on where you can get help with managing your repayments. .   

I can’t afford my Buy Now, Pay Later repayment, what can I do?

If you are struggling to make repayments then there are a few ways you can get debt help for buy now, pay later payments. Some brands offer payment holidays and revised payment schedules to help users pay back what they owe. 

Money worries can be stressful, but it’s important to remember that you’re not alone. There are many places that you can seek help and advice with any financial problems. 

*A survey of 2,016 UK respondents aged 18-55 about their buy now pay later service usage during August 2020 and a survey of 2025 UK respondents aged 18-55 about their buy now pay later service usage during June 2021 on behalf of money.co.uk.