Martin Lewis and his Money Saving Expert team have issued a fresh warning to people who use Buy Now, Pay Later (BNPL) services such as Klarna.
Issuing the advice in his later MSE newsletter this week (22 October), Lewis told his readers to ‘watch out’ when it came to using the shopping option when checking out.
Millions of people use the likes of Klarna and Clearpay across the United Kingdom, with this method of payment becoming more and more common with high street retailers and even the likes of takeaways.
A couple of options are usually available, including buy now, pay in 30 days, or splitting the cost in to three equal, monthly segments. Certain agreements let you pay in 12 months’ time, depending on the service being used and the retailer you’re buying from.
But in his newsletter, Lewis told people about looming changes to the BNPL schemes and warned about using them in the meantime before the changes come in to play.
Directing people to an MSE article on the issue, Lewis wrote: “Do you use Buy Now, Pay Later? Watch out – it’s not regulated (yet!). That’s now due to change, but not until 2026.”
Klarna is a popular BNPL service (Omar Marques/SOPA Images/LightRocket via Getty Images)
Using BNPL can be dangerous if you can’t manage the repayments (Getty Stock Images)
Buy Now, Pay Later warning
With buy now, pay later being a completely normalised way of purchasing in 2024, the MSE team has warned about using it and getting it wrong.
“Millions of people use Buy Now, Pay Later firms, such as Klarna and Clearpay, when shopping online or in store,” they wrote.
“Managed correctly, they can be a cheap and quick way of accessing credit.
“But research shows many users aren’t aware that if something goes wrong, you face late fees, and, increasingly, marks on your credit file.”
Marks on your credit file indicate you have bad credit, which is when you have evidence of difficulty keeping up with payments for services, such as clothing, a car, phone contract, or something as significant as a mortgage.
If can mean you could face trouble borrowing money in the future for products that require a financial agreement, such as upgrading your iPhone or Samsung Galaxy phone.
Not making your BNPL repayments can lead to bad credit ratings (Getty Stock Images)
What is changing with Buy Now, Pay Later rules?
As it stands, rules surrounding BNPL are not the same as when you enter a standard credit agreement. But that is changing.
Four key changes have been put forward by the Government on how BNPL should change.
Once the rules come in to force, which will be in 2026, those providing BNPL schemes must give ‘clear and accessible information about the risks involved’.
“This should enable you to make fully informed decisions before using BNPL services,” the MSE team says.
Affordability checks will also have to be performed on those looking to use BNPL in the same way that you will be soft credit checked for taking out a car on finance.
There will also be something called Section 75 protection on goods bought with BNPL services.
MSE explains: “This would apply to items costing over £100 but not more than £30,000, as it does for credit cards currently. It means the BNPL provider will be jointly liable with the retailer if anything goes wrong.”
Lastly, those using BNPL can take issues to the Financial Ombudsman Service if they are not happy with the experience or treatment they have received in their buying experience.
You will soon get checked for affordability when using BNPL, like you would when taking a car out on finance (Getty Stock Photo)
‘It’s a travesty’
Martin Lewis says it’s a ‘travesty’ that BNPL has never had these proper regulations.
“Buy Now, Pay Later is now ubiquitous at online checkouts, so the fact it’s never been regulated is a travesty I and others have long campaigned on. The last Chancellor promised to regulate, then the tumbleweed rolled as he went silent, so I am delighted the new Government has quickly restarted the process,” he said.
“BNPL can be useful, allowing those who need to spread payments for a budgeted, necessary purchase like a plumber to do it interest-free. Yet it’s been sold as a lifestyle choice, not a debt, and pushed for instinct buys or even takeaways. Too many are in trouble with multiple BNPL repayments, leading to debt-chasing and credit file damage.
“Regulation will mean firms must be overt that it’s a debt, have proper affordability rules, and will crucially let people go to the ombudsman if things go wrong. Yet it’s not coming in until 2026, so people should still be very wary until then.”
