“Buy now, pay later” (BNPL) is one of those financial products that sounds like a solution until you look at what it actually costs and what psychological tricks it relies on.
The pitch is simple: split a purchase into chunks (usually three or four equal payments over weeks or months), pay no interest, no fees. Want a £40 item? Pay £10 now, £10 in two weeks, £10 in four weeks, £10 in six weeks. Sounds helpful, especially if you do not have the money right now.
But BNPL is not about helping people. It is about extracting behavioural data, creating addiction-like spending patterns, and positioning itself as a stepping stone to the predatory lending industry. Here is what you need to know.
How BNPL Providers Actually Make Money
If they are not charging you interest and claim to have no fees, how do they make money?
They charge merchants (the shops and online sellers) a percentage of the transaction. It is usually 2 to 5%, sometimes higher. They also collect behavioural data: what you buy, when you buy it, how much you spend, your address, how you interact with the app. This data is valuable — it helps them identify high-risk customers and understand purchasing patterns.
They are gambling that most users will pay on time, while enough will miss payments (triggering fees and collection costs) to make the numbers work.
Most importantly, they are building a user base. Klarna, Clearpay, PayPal Pay Later, and others all started with zero-fee BNPL to get users hooked. Once they have your habits and your data, the next step is credit products with interest. This is a funnel.
The Catch
The “no fees” claim has a huge asterisk.
If you miss a payment, the fees kick in. Klarna charges £6 when you miss a payment on the first time, then £10 per week after that (capped at £20 per payment). Miss multiple payments, and these add up. Miss on the final instalment and you could owe more in fees than the original item cost.
Even if you never miss a payment, late fees are not the only cost. Many BNPL providers are starting to introduce “opted-in” interest products. You use their app, you see offers for credit products, you start seeing credit as normal.
There is also opportunity cost. By committing to four payments over six weeks, that money is locked in. It cannot be used for anything else, including handling a genuine emergency. If your car breaks down in week three and you need cash, you are in a difficult position.
The Psychological Trap
BNPL is designed to exploit how we make spending decisions.
When you see a price of £120, your brain processes that as “expensive.” But when it is split into four payments of £30, your brain processes each payment separately. The psychological pain of spending £30 is much less than the pain of spending £120, so you are more likely to buy. This is called “payment disaggregation,” and research shows it significantly increases spending.
BNPL apps are designed to make the split payments frictionless. You open the app, tap a button, and the purchase is approved instantly without any application process or credit check. There is no pause. No opportunity to ask “Do I actually need this?” This is friction removal, and it is deliberately engineered to encourage impulse spending.
Studies from both Klarna and its competitors show that BNPL users spend significantly more than they would without BNPL. One Klarna study found that 57% of users made purchases with BNPL they would not have made any other way. That is the point.
Debt Spiral Risk
Here is where it gets serious. BNPL is often used by people who do not have cash available right now. That means they are not spending from savings. They are committing future money they do not yet have.
If you do not have £120 now but are buying an item with four £30 payments, you are assuming you will have £30 in two weeks, £30 in four weeks, and £30 in six weeks. What if you do not? What if your hours at work get cut, or you lose your job, or an emergency costs more than expected?
Young people with irregular income (part-time workers, gig economy workers, zero-hours contract staff) are particularly vulnerable. They might feel flush after a good week and split-purchase several items, then find themselves unable to pay when those commitments come due.
The FCA (Financial Conduct Authority) is beginning to regulate BNPL more heavily specifically because of this risk. New rules require affordability checks and tighter limits on how much can be borrowed.
Does It Ever Make Sense?
BNPL makes sense in very specific circumstances:
You have the money but prefer to spread the payments. For example, you need a £300 laptop for university next month, you have £300 in savings, but you want to protect that savings for an emergency. Using BNPL to spread the cost over six weeks while your next paycheque comes in makes sense. You are not actually borrowing anything. You are just restructuring cash flow you already have.
You are buying something with a limited-time offer. If an item is on sale and will be more expensive later, and you do not have cash now but will have it in three weeks, BNPL lets you lock in the offer price. This is a rare case where time matters.
In both cases, the rule is: you must be certain you can make every payment on time. If there is any doubt, do not use it.
The Credit File Question
Here is something that surprises people: most BNPL providers do not report to credit reference agencies. A Klarna purchase does not appear on your credit file (unless you miss payments, at which point it is reported negatively).
This means BNPL does not help you build a credit history. It also means BNPL purchases are invisible to lenders when you apply for a mortgage or loan. From a lender’s perspective, if you have used BNPL for two years but it is not on your credit file, it looks like you have not used credit at all.
If you are trying to build a credit score, BNPL does not help. If you are trying to hide debt, BNPL is effective at that — but hiding debt from lenders is deceptive and risks much worse consequences.
Regulation and The Future
For years, BNPL was lightly regulated. The FCA is tightening rules now. From December 2024, BNPL providers must:
Conduct affordability assessments (check you can actually afford the payments)
Report missed payments to credit reference agencies
Set limits on how much can be lent
Be transparent about fees
These are good changes. But they also signal that BNPL is gradually being repositioned as a credit product, not a convenience tool. As regulation tightens, expect lower borrowing limits and stricter affordability checks.
The Alternative
If you are tempted to use BNPL, ask yourself: “Why do I not have the cash for this right now?”
If the answer is “I do not have a rainy-day fund,” that is a bigger problem than BNPL solves. Build the emergency fund first.
If the answer is “I want it but cannot afford it,” the answer is not BNPL. The answer is “Wait, or buy something cheaper.” Splitting the cost does not change the underlying problem: you are spending money you do not have.
If you genuinely have the money and want to spread the payments, you have better options: a 0% interest credit card (if you can get one), a personal loan at a fixed rate from your bank, or simply waiting until you have the cash.
The Bottom Line
BNPL is not a bad thing in itself. It is a neutral tool that can be used wisely (spreading costs you can actually afford) or foolishly (spending money you do not have because payments feel small).
But the entire ecosystem is designed to encourage foolish use. The app is optimised for impulse spending. The marketing emphasises ease. The payment disaggregation makes the cost feel smaller. The lack of credit checks removes friction.
If you use BNPL, go in with eyes open: you are spending money you do not have right now. You are committing money you will earn in the future. If something goes wrong in the next six weeks, you will be in trouble. And the providers are counting on some percentage of users to miss payments, hit the fees, and get drawn into their credit ecosystem.
Use it if you must. But the safer path is to not spend money you do not have, for any reason, using any tool.
This article is part of the Money Sorted series on moneysorted.money. For more on debt, credit, and understanding financial products, explore the full range of articles, courses, and eBooks.