In this article, we will explain how BNPL schemes work, the impact they may have on your credit score, your legal rights, and detail what may happen if it goes wrong, including what kind of rights you have to take action if they mistreat you.
Buy Now, Pay Later (BNPL) schemes are being rapidly adopted across the UK and quickly becoming a consumer payment service, which means you can instantly and quickly pay later, in sections, and without the (often) immediate interest. It doesn’t matter if you are using Klarna, Clearpay, Laybuy or some other BNPL scheme; the principle is the same. You pay later or you divide the payment so that you can receive the item now and then pay for it later for free. This includes sometimes paying for free interest in the immediate future. Nonetheless, while the idea of being able to pay at some other defined date is attractive, BNPL schemes are often unregulated or only partially regulated, and the financial consequences can be potentially considerable.
Why is This Important?
Each BNPL platform represents a legally binding credit agreement. Unfortunately, many consumers do not know their rights and responsibilities when using a BNPL platform. This uncertainty can lead to unexpected debts, damage to credit scores and/or legal action.
As UK regulators have created tighter regulations surrounding BNPL, there has never been a better time to know your rights and where you stand on a BNPL contract.
What is the Notion of Buy Now, Pay Later?
Buy Now Pay Later (or BNPL) allows consumers to split the total cost of a purchase into several payments over a set period. These people can make interest-free payments either weekly or monthly. They typically use BNPL for a wide array of purchases, especially fashion, beauty, electronics, etc.
The common BNPL options in the UK are currently:
- Klarna Pay in 3 – three equal instalments taken automatically every 30 days
- Clearpay – four payments over six weeks
- Laybuy – six weekly instalments
These options are presented at the end of checkout when you’re in the process of purchasing any product these days. Sometimes, they only require a ‘soft’ credit check or no credit check at all, making BNPL easy to access and overuse.
Legal Status of BNPL Agreements
BNPL contracts may appear informal, but they are consumer credit agreements and are defined by UK Law as regulated agreements. From 2023, the Financial Conduct Authority (FCA) started to enact further regulation in this area.
Your legal rights include:
– You have the right to clear terms before you agree.
– You will be protected under the Consumer Protection Act if anything is wrong with your purchase.
– You will have the right to dispute payments and return defective items. BNPL providers still have to comply with the above provisions.
However, as most common BNPL providers operate by temporary permission or unregulated agreements, consumer protections are inconsistent and sometimes uncertain when a dispute arises.
The Effect on Your Credit Score
Several BNPL providers are stating that the service has no impact on your credit history, but this is changing rapidly. For instance, BNPL providers have begun reporting repayment behaviour to a credit reporting agency; also, missed payments can surely affect your credit score.
How Can BNPL Affect You?
- Missed payments: missed payments can be reported and are subject to the recovery of debt
- Multiple Buy Now Pay Later accounts: multiple Buy Now Pay Later accounts can give lenders the impression that you are not taking care of your financial well-being
- Hard credit checks: A few BNPL providers are conducting thorough searches on your credit rating, especially on larger purchases
Example from life: A young professional purchased clothing and tech under Buy Now Pay Later (BNPL) repayment terms using three different platforms at the same time. She started a new job, and after she missed two payments, her credit score went down. Later on, she applied for a car loan, and the application was automatically declined.
What Happens If You Miss a Payment?
You can expect the following if you miss a payment:
- Late fees and penalty fees
- Referral to a debt collection agency
- Mark on your credit file
- Suspension of BNPL services/enforced repayments
If you received an incorrect order or if you did not receive an order at all, you may be able to dispute the debt; however, many people are not aware of this. Often, they are just caught between the retailer and BNPL, with no solution either way.
Your Legal Options to Explore if Something Goes Wrong
Most of the problems related to BNPL are legal rather than financial. You ought to consider whether you have a viable claim for a remedy if you are:
- Charged for goods that you did not receive
- Pursued for payment following a return
- Misled by a retailer or BNPL provider
- Pursued in collections without the correct notice
You have a right to:
- Dispute the debt in writing
- Ask for a refund or modification
- Take the matter to the ombudsman
- Commence, if necessary, a small claim in the County Court
Some Preventative Ideas when you are considering using BNPL
Preventative Tips for Using BNPL Responsibly
- Make sure that you take the time to read the terms carefully: for example, payment duration and late fees.
- Do not use multiple providers: research indicates that the more BNPL providers you use, the greater the risk.
- Think of BNPL like a line of credit: would you buy the item if you had to pay the total today?
- Consider how much you spend: use an app to help you track expenses, or set reminders to make repayments.
- Check that you receive reminders for when payments are due: make sure your email address is up to date and your payment details are correct.
When It’s Time to Take Legal Action
You can take action when your rights are violated (for example, you have been denied a refund for a returned product, or you are being pursued for a debt you do not owe). In terms of outstanding complaints, you might want to consider a small claims court.
For this situation, it is appropriate to think about small claims when:
- You are claiming refunds or unconditional charges less than £10,000
- You have gone through the usual channels of dispute resolution (retailer, BNPL provider, ombudsman, etc.)
- You want to send a direct, formal, and unequivocal message that you won’t accept unlawful treatment.
How Can CaseCraft.AI Help You
If you are struggling to get your money back or challenge an unfair BNPL claim, CaseCraft.AI can help you regain control. We provide the technology for people like you to access the justice system without the lawyers’ fees.
At CaseCraft.AI, you can:
- Draft and send a Letter Before Action in minutes
- Hold and upload your evidence (receipts, contracts, or screenshots)
- Submit your small claim online through a fast, easy-to-follow process
- Log every deadline and remain notified of what is happening in your case.
No complicated vocabulary and no fuss. Just the tools you need to stand up for your consumer rights.
Closing Thoughts
Buy Now Pay Later services offer speed and convenience, but oftentimes this convenience can be costly. Now that you understand how these agreements work and what their implications can be on your credit rating and legal status, you are now better equipped to protect yourself.
Should things go awry, you do not just have to accept this. You have the power of the law at your side, and CaseCraft.AI will help you access it.
