Shoppers using Buy Now Pay Later (BNPL) services have stronger rights but some will be refused loans, as new rules come into effect.
From Wednesday, BNPL lenders must have regulator approval to operate, giving shoppers more access to refunds and independent rulings on unresolved complaints if things go wrong.
Providers such as Klarna and Clearpay have become huge operators allowing consumers to pay in interest-free instalments, but campaigners have often described the wider sector as an unregulated Wild West.
There are fears that new affordability checks on each BNPL transaction will leave some blocked for the first time, pushing them towards “thrilled” loan sharks instead.
“While regulation is clearly needed and welcomed, our recent research found that nearly half of those likely to be rejected have not missed a BNPL payment,” said Kate Pender, chief executive of not-for-profit Fair4All Finance, which promotes fair and accessible financial services.
“The need for credit doesn’t just disappear when you can’t access it and people are often pushed towards more expensive or unregulated alternatives.”
But Klarna, the UK’s largest provider, disagreed.
“Klarna doesn’t share these concerns because the new rules largely formalise what we already do: we run affordability checks, show costs upfront and report to credit reference agencies,” a spokesman for the company said.
“Like the [regulator], we expect the new regulation will ultimately lead to growth as it increases consumer trust and confidence.”
What’s changing under new rules
Only lenders authorised by the Financial Conduct Authority (FCA) will now be able to offer BNPL services, bringing them more in line with credit card providers and banks offering loans.
It also means:
Customers can now refer new unresolved complaints about BNPL services to the Financial Ombudsman Service (FOS) for independent adjudication. The FOS expects to deal with about 2,000 cases by the end of March
Consumers can claim for refunds and compensation for faulty goods costing more than £100 from the BNPL provider (known as section 75), as is already the case with items bought on a credit card
Shoppers must pass an instant and automatic test that they can repay the loan, otherwise the purchase via BNPL will be blocked
Borrowers must get clear upfront information about the loan such as what happens if a payment is missed, and be directed to free debt advice if they are in financial difficulty
Regulators say stricter regulation will prevent people from splashing out on something unaffordable in a few clicks, taking on too much debt and being caught out by late payment fees.
But Pender estimated 10% to 30% of BNPL users would fail “conservative” affordability checks, which are designed by each lender. This could leave many unable to buy the essentials they needed.
Loan sharks would be “thrilled at the prospect”, she told BBC News, with younger people or those who had repayment issues in the past among those more likely to be rejected.
BNPL has proved particularly popular with 18 to 24-year-olds, although it has widespread use among all age groups.
‘It didn’t feel like debt’
Many debt charities have welcomed the changes, which they say have come after years of delay. They are still urging people to pause before buying anything via BNPL, to consider whether they would have bought it even if it was not available on credit.
They point out that some retailers’ in-house BNPL products will fall outside of the new regulation.
Advice service Money Wellness said its figures suggest people were increasingly spreading smaller purchases across multiple BNPL agreements rather than using the product for occasional high-value items.
“Our concern isn’t Buy Now Pay Later itself. It’s what can happen when people begin relying on multiple forms of credit simply to make ends meet,” said Matthew Sheeran, its external relations manager.
Tim Riesner was among those who took out various loans, including BNPL, only to face problems when his life changed.
“It didn’t feel like debt. It felt like convenience. You’re buying something online and it says ‘split it, pay later’. You think you’re being sensible. But you can have multiple plans running at once,” he said.
“Before you know it, it’s thousands. Add in loans, credit cards, bits of finance here and there, and suddenly I owed £24,000.”
His finances unravelled after having to give up well-paid work in construction after suffering problems with his eyesight.
“Nobody should have any sympathy for me at all. I’m an adult. I knew what I was doing. The responsibility lies with me. However, advertising is very seductive. It draws you in, because the society that we live in is the society that says you can have it, and you can have it right now,” he told the BBC.
After a tough and dark period, he spoke to charity National Debtline, where staff helped him to go through his debts, organise a Debt Relief Order, and he is now well on his way to being debt-free.
Jack Sporcic, debt adviser at the charity, said: “We are urging consumers to treat Buy Now Pay Later in exactly the same way as any other form of borrowing.
“We often see people using Buy Now Pay Later for everyday essentials such as food, energy bills and household basics.”
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Credit reference agency Experian, which already receives data voluntarily from some providers estimated that more than 100 million BNPL transactions were made by 8.5 million customers in 2025, worth more than £7bn in spending.
Of that spending, 98.5% of balances were repaid on time, it said.
Leading BNPL providers have supported regulation of the sector, albeit with calls to allow them to innovate.
“Interest-free buy now pay later is a simpler, fairer, lower-cost alternative to revolving credit. Robust regulation that gives consumers added confidence and strengthens their access to protections is a good thing,” said a spokesman for Klarna, which says the average age of its customers is 38.
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