Debt
Buy now pay later and how it works
It is credit, it increases spending measurably, and the regulatory position has been changing rapidly.
Deferred payment products have grown very rapidly, are used heavily by younger consumers, and occupy a position that is neither quite credit nor quite payment in most people's understanding.
What it is
A short-term credit product, typically splitting a purchase into instalments over weeks, usually interest-free if paid on time.
The retailer pays a fee to the provider, which is why it is offered.
Longer-term products with interest also exist and are closer to conventional credit.
And regardless of the marketing, it is borrowing.
What the evidence shows
Consistent findings.
Research on deferred payment products finds that they increase both the likelihood of purchase and the basket size, which is the commercial rationale.
Users are more likely than average to be in financial difficulty and to be using other forms of credit.
A meaningful proportion of users report missing payments and incurring fees.
Multiple concurrent agreements are common and difficult to track, which is the main practical problem.
And a substantial proportion of users do not think of it as debt, which is the reason it accumulates unnoticed.
The costs
Which exist despite the interest-free framing.
Late fees, which vary by provider and can be substantial relative to small purchases.
Referral to debt collection where payments are missed.
Reporting to credit reference agencies, which several providers now do, meaning missed payments affect credit files.
Effect on mortgage and loan affordability assessments, since lenders increasingly see these commitments.
Returned payment charges from your bank if a payment fails.
And the opportunity cost of committed future income.
The consumer protection gap
Which is narrowing.
These products have in many jurisdictions fallen outside the regulation applying to conventional credit, meaning: affordability checks were limited or absent; the protections that apply to credit card purchases did not apply; and access to financial ombudsman services was inconsistent.
Regulators in several countries have introduced or announced regulation, bringing affordability requirements, information disclosure and complaints access.
Which means the position varies by country and by date, and checking what applies where you are is worthwhile.
Returns and disputes
A specific practical problem.
Returning goods bought this way frequently leaves the payment plan running while the refund is processed, which can take weeks.
Disputes with retailers are more complicated than with a credit card, where joint liability provisions apply in some jurisdictions.
Which means for higher-value purchases, a credit card cleared in full generally offers better protection at the same cost.
Managing it if you use it
Practical measures.
Keep a single list of every active agreement with amounts and dates, since the providers do not aggregate.
Set up direct debits rather than relying on card payments that may fail.
Check the total committed against your monthly income, which is the number that matters and which nobody calculates.
Do not use it for essentials such as food and bills, which indicates a budget shortfall rather than a payment preference.
Avoid using it across multiple providers simultaneously.
And treat it as debt in any budgeting, because it is.
If you are behind
What to do.
Contact the provider, which will generally have a hardship process.
Include these debts in any free debt advice, since advisers deal with them routinely.
Do not prioritise them over priority debts such as rent, mortgage, energy and local taxes, regardless of collection pressure.
Check whether the lending was affordable when granted, since affordability requirements now apply in several jurisdictions and complaints are possible.
And stop opening new agreements, since the pattern is cumulative.
The alternatives
For the same purpose.
Saving for the item, which for anything non-urgent is straightforwardly cheaper.
A credit card cleared in full, which provides better protections at no cost.
A credit union loan for larger items, at capped rates.
Second-hand purchase.
And, for essential household items, reuse schemes and local welfare assistance, which exist and are under-used.
The wider point
Worth making.
Products that make spending frictionless increase spending, which is a consistent finding across payment methods from cash to cards to contactless to deferred payment.
Which is not an argument that these products are illegitimate, and is an argument for treating the friction they remove as having been useful.
Adding friction back deliberately — a waiting period before any non-essential purchase, removing saved payment details — is the practical response.
General information only, not financial advice. Regulation varies by country and is changing — contact a free debt advice service if you are struggling with repayments.
