The short version: Buy now, pay later (BNPL) like Klarna and Clearpay splits a purchase into interest-free instalments — which is genuinely fine if you could already afford it. The trap is that it makes overspending frictionless, missed payments now show up on your credit file, and until each agreement is FCA-regulated you have fewer protections than with a credit card. From 15 July 2026, new BNPL agreements come under FCA rules. The one safe rule: only use BNPL for something you could pay for outright today.
“Pay in 3. Interest-free. No fees.”
It sounds like a favour. Split a £120 purchase into three chunks of £40 — where’s the harm?
And used well, there isn’t much. That’s what makes BNPL slippery. It’s not a payday loan with a scary rate. It’s frictionless, interest-free, and everywhere — which is exactly the problem.
I assessed customers’ credit risk at Barclaycard. The thing that quietly sinks people is rarely one big bad decision. It’s lots of small, reasonable-looking ones — and BNPL is built to feel reasonable every single time.
What is buy now, pay later — and how does “pay in 3” work?
BNPL lets you take something home now and pay for it later, usually interest-free, in instalments.
Klarna Pay in 3 splits a purchase into three payments: one at checkout, then two more, 30 and 60 days later. Pay in 30 lets you pay the whole amount within 30 days.
Clearpay typically splits into four payments over six weeks.
No interest, if you pay on time. That’s the genuine appeal — and for a planned purchase you can afford, it can be a reasonable way to spread a cost.
Is BNPL actually bad?
Not inherently. The problem isn’t the product — it’s the behaviour it encourages.
BNPL removes the friction that normally makes you pause before spending. There’s no interest to concentrate the mind, no monthly statement landing, and the payments are small enough to feel like nothing.
So two things happen. You buy things you’d have thought twice about. And you stack multiple plans across different retailers until you’ve genuinely lost track of what leaves your account and when.
It’s telling that the debt charity StepChange has found BNPL users are twice as likely as other borrowers to be using credit to cover essential bills. That’s the line between “spreading a cost” and “quietly sinking” — and BNPL blurs it.
Does Klarna affect your credit score?
This has changed, and a lot of people haven’t caught up.
Since June 2023, Klarna reports both on-time and missed Pay in 3 and Pay in 30 payments to the UK credit reference agencies Experian and TransUnion. So your BNPL use now shows on your credit file.
Used well, that can actually help — a record of paying on time is a positive marker. But miss a payment and it works the other way: a missed payment or a default can be recorded, and negative markers can stay on your file for up to six years, making future credit (including a mortgage) harder and more expensive.
Story: Maya’s warning Maya took out a £500 Klarna plan for a laptop. She missed one payment when her hours were cut. That triggered late fees, a penalty, and a mark on her credit file. A year later she was turned down for a £35-a-month phone contract — not because she couldn’t afford it, but because that one slip had flagged her as a risk. One missed payment on a “harmless” instalment plan cost her access to ordinary, everyday credit.
One missed payment. That’s all it takes.
What protections do you have with BNPL?
Historically, fewer than you’d think — which is the other half of the trap. Because most BNPL hasn’t been regulated like a credit card, you’ve had weaker protection if something went wrong.
That’s changing. From 15 July 2026, new BNPL agreements come under FCA regulation. In practice that means:
- Affordability checks before you’re lent to.
- Clear, upfront information about your agreement and what happens if you miss a payment.
- Support if you’re struggling, including signposting to free debt advice.
- Section 75-style protection on purchases over £100 (and up to £30,000) — so the provider shares responsibility if something goes wrong with what you bought.
- The right to complain to the Financial Ombudsman Service if things aren’t put right.
Two important catches, though. These protections apply to agreements made on or after 15 July 2026 — not older ones. And some, like Ombudsman access, take time to come fully into force. So even with regulation arriving, the sensible approach doesn’t change: treat BNPL with care.
The M&G System: the one BNPL rule
- Only use BNPL for something you could pay for in full today.
- If you couldn’t buy it outright, that’s your signal you can’t afford it yet — BNPL doesn’t change that.
- Never run more than one or two plans at once. Stacking is how people lose track.
- Set the payment dates as reminders the moment you buy.
If you’re already juggling BNPL balances, stop adding new ones and make a plan to clear them.
Here’s the honest comparison:
| Pay now (debit) | BNPL (pay in 3) | Credit card (cleared in full) | |
|---|---|---|---|
| Interest | None | None if on time | None if cleared in full |
| Encourages overspending? | No | Yes — frictionless | Some |
| Shows on credit file | No | Yes (Klarna, since 2023) | Yes |
| Section 75 protection | No | New agreements from 15 Jul 2026 | Yes, over £100 |
| Best for | Anything you can afford | Planned buys you could afford anyway | Everyday spend, cleared monthly |
Your next step
If BNPL balances have crept up on you, the first move is simply to see them clearly. The free Debt Calculator lays out what you owe and the fastest, cheapest order to clear it: moneyandgrowth101.com/tools/debt-calculator.
And if it all feels tangled, a free Money Clarity Call is a no-judgement 20-minute chat to help you find the thread: book here.
Frequently asked questions
Does Klarna show up on your credit report? Yes. Since June 2023, Klarna reports both on-time and missed Pay in 3 and Pay in 30 payments to Experian and TransUnion, so your use of it appears on your credit file.
What happens if you miss a Klarna payment? You can face late fees, your account can be frozen to new purchases, and the missed payment can be reported to credit reference agencies. A default can stay on your credit file for up to six years.
Is BNPL regulated by the FCA? From 15 July 2026, new BNPL (deferred payment credit) agreements come under FCA regulation, bringing affordability checks, clearer information, complaints to the Financial Ombudsman Service and Section 75-style protection. Agreements made before that date aren’t covered.
Is BNPL better than a credit card? Neither is “better” — it depends on use. A credit card cleared in full each month gives you interest-free spending, credit-building and strong Section 75 protection. BNPL is fine for a planned purchase you could already afford, but it makes overspending easier and, until recently, offered fewer protections.
Mustafa Alsoodany is the founder of Money & Growth 101. By day he’s worked in financial crime and compliance at banks and fintechs — JPMorgan, Monzo, Starling and Barclaycard among them — and holds the ICA Advanced Certificate in Anti-Money Laundering at Distinction. He started Money & Growth 101 to do the opposite of the day job: make money plain, jargon-free and genuinely doable for people in their 20s and 30s who were never taught it.
Leave a Reply