Buy now, pay later: the loan that doesn’t feel like one

Buy now, pay later works because it removes friction. One tap, no forms, the cost cut into neat instalments. That is also the problem: it is borrowing that is designed not to feel like borrowing.

It is also no longer a niche habit. According to the Financial Conduct Authority, one in five UK adults, around 10.9 million people, used buy now, pay later at least once in the 12 months to May 2024. The FCA says the market grew from £0.06 billion of lending in 2017 to more than £13 billion in 2024.

Since 15 July 2026, much of this lending has finally been regulated. That is good news, but the protections are narrower than many people assume, and the habits that cause trouble have not changed.

What it actually is

In the rules, buy now, pay later is called “deferred payment credit”. The FCA describes it as interest-free credit that you repay in 12 or fewer instalments, over 12 months or less. The typical version is “pay in three” or “pay in four” at an online checkout.

Interest-free does not mean cost-free, and it does not mean it is not a loan. You are agreeing to pay money you do not yet have, on fixed dates, to a lender. If a payment fails, there can be consequences, and those consequences can follow you.

What changed in July 2026

The Government passed the law bringing this credit into regulation in July 2025, through an amendment to the Financial Services and Markets Act regime. The FCA confirmed its final rules in February 2026, and they apply to agreements taken out from 15 July 2026. Lenders now need to be authorised by the FCA, or to be operating under a temporary permission while they apply.

For agreements covered by the new rules, the FCA says you should get:

• An affordability check before you are lent to. The lender has to consider whether you can repay.
• Clear information up front, including what you are borrowing, when each payment is due, how much it is, any late fees and your rights.
• Contact from the lender if you miss a payment, explaining what it means, and support if you are struggling, including signposting to free debt advice.
• The right to take an unresolved complaint to the Financial Ombudsman Service, free of charge.
• Section 75 of the Consumer Credit Act, which can make the lender jointly responsible if something you bought goes wrong.

Section 75 is worth understanding. Under the Act, it applies where the item or service has a cash price of more than £100 and no more than £30,000. If a retailer goes bust or refuses to deal with a faulty product, you may be able to claim from the lender instead.

The gaps people miss

The new protections have limits, and they are easy to overlook at a checkout.

• Older plans are not covered. The FCA says any agreement taken out before 15 July 2026 remains unregulated, and the Ombudsman can only look at agreements taken out on or after that date.
• Some plans will never be covered. If the shop you are buying from provides the credit itself, rather than a separate lender, the FCA says it is not regulated.
• Regulation does not stop late fees. Lenders must tell you about them clearly. It does not mean they disappear.
• Your credit file may still be affected. Using these products, and especially missing payments, can show up when other lenders assess you.

Regulation makes the loan safer. It does not make it free, and it does not make it a good idea.

Where the costs hide

The danger with buy now, pay later is rarely one large purchase. It is the accumulation of small ones.

• Late fees on missed instalments, which can add up across several plans running at once.
• Stacking: three or four small plans can quietly become a monthly commitment you never consciously agreed to.
• Mismatched dates: instalments that fall before payday, or alongside rent and bills, are the ones most likely to fail.
• Collection and default: if missed payments are not sorted out, an agreement can be passed to collections or marked as defaulted, which is far harder to recover from than a single late payment.

The evidence on wider harm is more measured than the headlines suggest. A 2025 FCA research paper found that people who use this credit tend to be younger, have lower credit scores and carry more unsecured debt than the population as a whole. It found some evidence that using buy now, pay later modestly increases later missed payments on the same type of credit. It did not find consistent evidence that it causes people to fall behind on other credit or into wider financial distress. In other words, it is often a symptom of a tight budget rather than the cause of one.

Questions to ask before you click

None of this means you should never use it. Spreading the cost of a planned purchase, with no interest, can be perfectly sensible. The point is to make it a decision rather than a reflex.

• Would you buy this if you had to pay in full today?
• How many other plans do you already have running, and what do they add up to each month?
• When does each instalment leave your account, and is there definitely money there on that day?
• Who is the lender? Is it a separate firm, or the shop itself? You can check whether a lender is authorised on the FCA’s Firm Checker.
• What happens if a payment fails? Look for the late fee, and when it applies.

If the honest answers are uncomfortable, that is useful information. It is cheaper to find it out before you click than after.

If you are already behind

The most useful thing you can do is contact the lender before a payment is missed, not after. Under the new rules, regulated lenders must offer support to customers in difficulty. That might mean more time or a different repayment plan.

If you have several debts, a free debt adviser can look at the whole picture. In England and Wales, an adviser can also apply for “breathing space”, a Government scheme that pauses most interest, fees and charges and stops creditors taking enforcement action for 60 days while you get advice. There is a separate version for people receiving mental health crisis treatment. You still owe the money, but it gives you room to plan.

If you complain to a regulated lender and you are not happy with the answer, or you have not had a final response within eight weeks, you can take it to the Financial Ombudsman Service. It does not cost you anything.

This article is for general information and is not medical, legal or financial advice. Laws differ between countries. Read our editorial standards.