BUY Now Pay Later (BNPL) borrowers will benefit from stronger protections in a “big step forward”, it has been announced. But experts have warned that “excessive use of BNPL can have an impact on your credit score”.
From 15 July, the Financial Conduct Authority (FCA) will regulate the BNPL sector.
It will be subject to the Consumer Duty and the FCA said consumers will benefit from clearer information, affordability checks, support when needed, and the chance to complain and seek compensation.
Sarah Pritchard, deputy chief executive at the FCA, said: “We want the Buy Now Pay Later sector to thrive – it provides an important source of credit to many – and we will continue to support firms who want to develop innovative new products.
“But crucially, no one should be lent to if they’re unable to repay, because that could worsen their financial situation. Now Parliament has given us the powers, we’re putting in place proportionate protections for the 11 million people who use it.”
Big step forward
Riz Malik, Director at Southend-on-Sea-based R3 Wealth, warned that using it too much could negatively impact your ability to secure loans.
He added: “Excessive use of BNPL can have an impact on your credit score which could cause complications if applying for other forms of finance such as a mortgage.
“I’ve seen pages on credit files for BNPL, usually for nominal amounts. The public should be warned that just because you can pay for that phone, coat or pizza (yes pizza) in monthly instalments doesn’t mean you should.”
Scott Taylor-Barr, Principal Adviser at Leicester-based Barnsdale Financial Management, said there needs to be a minimum transaction size for BNPL-type lending.
He added: “These extra protections for consumers are long overdue and, given that the target market for these products are more likely to be classified as potentially vulnerable under the FCA guidelines, then it’s right that more thought should be given to the lending.
“Whether retail staff will be given the training, resources, and time to do the job properly will be the next test of the changes and how effective they ultimately are. One thing I would have liked to see introduced is a minimum transaction size for BNPL-type lending, say £100, as taking credit for a takeaway is concerning.”
Excessive use can impact your credit score
Ranald Mitchell, Director at Norwich-based Charwin Mortgages, said it was a “big step forward”.
He added: “BNPL has exploded because it fills a gap, and too often that gap is tight household budgets. When the weekly shop, school costs or a replacement washing machine has to go on instalments, it’s a sign many people are relying on BNPL as a coping tool, not a choice.
“The new FCA regulation is a big step forward. Clearer terms, proportionate affordability checks and proper support when someone is struggling should help stop these silent debts stacking up across multiple checkouts. For anyone aiming for a mortgage, this matters.
“Regular BNPL use can quietly eat into disposable income and undermine affordability, even if you’ve never missed a payment elsewhere. Used occasionally and repaid on time, it can be useful. Used habitually to make ends meet, it’s a warning light that needs to be taken seriously.”
Samuel Mather-Holgate, Managing Director & IFA at Swindon-based Mather and Murray Financial, said regulation is important.
He added: “This area needed tightening up, because even though some BNPL might be interest free, the fees that are charged if you miss a payment bring that equivalent rate through the roof. The regulator needs to keep a close eye on this to avoid the next payday loan scandal.”
Photo by Guilherme Camargo on Unsplash.
