In recent times, a new type of ‘free’ credit has transformed the way British consumers shop. This convenient option, known as Buy Now, Pay Later (BNPL) credit, is widely available at online retailers, making it easy for individuals to purchase a variety of items, ranging from clothing to vehicles.
BNPL credit is favored by retailers as it enables customers to make purchases beyond their immediate financial means, increasing the likelihood of completing a transaction rather than abandoning their online shopping carts due to budget constraints.
While consumers appreciate the flexibility of BNPL credit, concerns have been raised about its potential to lead individuals into unnecessary debt by facilitating impulsive and unaffordable purchases. Some instances have shown frivolous spending on items like pizza, and the rapid extension of credit to individuals with significant existing debt or hasty referral of outstanding balances to debt collectors.
Fortunately, regulatory intervention is on the horizon. The Financial Conduct Authority (FCA) has announced that BNPL will be fully regulated starting July 15, 2026, with a set of new rules and standards aimed at addressing these issues.
BNPL functions by providing short-term loans, with or without interest, allowing consumers to make purchases even if they cannot afford the full payment upfront. Retailers actively promote BNPL credit, offering three primary types of BNPL deals:
1. Limited Instalments: Customers can make interest-free payments in a set number of instalments, typically three, enabling upfront purchases without immediate payment in full.
2. Try Before You Buy: This option provides a brief evaluation period, usually 30 days, to review goods before committing to the purchase. Failure to return items within the specified timeframe may result in the purchase being finalized.
3. Credit Agreements: These agreements involve paying for purchases in instalments over an extended period with added interest, similar to traditional credit deals.
While unregulated BNPL loans, termed Deferred Payment Credit (DPCs) by the regulator, are popular, concerns persist over individuals accumulating substantial debt through these means. The FCA’s forthcoming regulations aim to implement stricter affordability checks to prevent financial overextension and indebtedness, potentially resulting in significant financial benefits for consumers in the long term.
By enhancing scrutiny of borrowers’ financial circumstances, these regulations are anticipated to safeguard individuals from excessive debt and improve overall financial well-being.
