Buy now pay later providers: Klarna, Clearpay, PayPal and how BNPL works

Buy now pay later, or BNPL, lets you take an item home or have it delivered straight away and pay for it in instalments afterwards, with no interest charged. It is a short-term form of credit: the Financial Ombudsman Service describes it as a way of spreading payments, interest free, over a short period of no more than 12 months¹. The formal name for it in the rules is Deferred Payment Credit, or DPC².

The names most UK shoppers meet at checkout are Klarna, Clearpay and PayPal, with Amazon also offering its own scheme³. Klarna, PayPal and Clearpay are the UK's main three BNPL firms⁴. Since 15 July 2026, most BNPL products have been regulated by the Financial Conduct Authority for the first time, bringing affordability checks, Section 75 protection on larger purchases and access to the Financial Ombudsman Service⁵.

How buy now pay later works: short instalments, no interest

BNPL is an online payment option that lets you buy an item straight away and delay paying until a later date¹². In its most common form, the cost is split into instalments: the Consumer Council for Northern Ireland describes paying regular instalments over a period of weeks or months, or agreeing to pay by a fixed date and settling the balance in full no later than that date⁸. Some schemes simply delay the whole payment by 30 days, while others split it into fortnightly or monthly instalments, typically over 30 days to three months¹³.

The legal definition used by the regulators is narrower than the marketing. The legislation that brought BNPL under FCA control defines it as interest-free credit that lets borrowers split the cost of purchases into up to 12 regular repayments, within a period not exceeding 12 months⁷. Anything longer, or anything charging interest, is treated as ordinary credit and was already regulated.

Two structures cover most of what you will see at a UK checkout:

PayPal Pay in 3, for example, splits the cost of a purchase over three interest-free instalments¹⁴. Clearpay's scheme works on four instalments, and Klarna and Clearpay are two of the main short-term BNPL providers offering payment after 30 days or over three or four months¹⁵.

The key point is that although no interest is charged, BNPL is still a loan. StepChange makes this plain: usually there is no interest to pay on BNPL, but it is still a loan⁶. Your credit agreement is with the BNPL provider, not the retailer⁸, which matters when things go wrong and when you want to complain. The wider guide to buy now pay later covers the mechanics in more depth.

Who the main BNPL providers are

The providers UK shoppers meet most often are Klarna, Clearpay, PayPal and Amazon³. The Consumer Council also names Laybuy among the examples, while noting there are many providers available⁸. Klarna, PayPal and Clearpay are described in the FCA's policy work as the UK's main three BNPL firms⁴.

The three are not identical in what they do. Klarna and PayPal offer both regulated lending products and unregulated BNPL products, while Clearpay focuses solely on BNPL¹⁶. Since 15 July 2026 that distinction matters less to shoppers, because BNPL itself is now regulated, but it explains why the same brand can appear both as a checkout option and as a longer-term credit provider.

BNPL is a large and growing market. UK Finance reports that BNPL was launched in the UK in 2014 and has become a major growth area, encompassing 8% of all online and physical point of sale payments¹⁷. Usage jumped in 2024, with 25% of UK adults using BNPL at least once, compared to 14% in 2023, and the share of frequent users, meaning monthly or more often, standing at 33%¹¹.

Who uses it matters as much as how many. Research by the University of Bristol's Personal Finance Research Centre found that one in five, or 20%, of its low-income sample had used BNPL¹⁸. The FCA's own policy analysis found that 38% of BNPL users spent more than they planned to because BNPL options were available at checkout, and that 44% of frequent BNPL users are over-indebted¹⁶.

If you are comparing BNPL with a card, the dedicated comparisons cover Klarna vs Clearpay, Klarna vs PayPal Pay in 3 and buy now pay later or a credit card.

Fees and charges: no interest, but late fees can reach £24

The headline is that standard BNPL charges no interest. That is what separates it from a credit card or an overdraft, and it is why the legal definition describes it as interest-free instalment credit⁷. But no interest does not mean no cost.

Late fees are the main charge. Which? reported in December 2023 that you can incur late fees ranging from £10 to £24 if you miss a payment¹⁹. Clearpay's fees are set out in detail by National Debtline and Business Debtline: Clearpay adds a late repayment fee of £6 for each late instalment, and a further £6 if the payment is still outstanding seven days later, with charges capped based on how much you have borrowed⁹.

How common are these fees? A survey by the Money and Pensions Service found that 14% of BNPL users had paid a late fee, and the FCA's analysis found that 19% of users of fee-charging providers were unaware of the fees¹⁶. StepChange warns that you can also be charged high fees and interest if you fall behind, once arrears push an agreement outside its interest-free terms⁶.

From 15 July 2026, providers must give you clear information about your agreement, the payment amount and due date, and must explain what happens if you miss a payment, before you sign up⁸. The general guide to loan fees and charges covers how fees work across borrowing generally.

Who can use BNPL and how spending limits are set

BNPL is offered at checkout rather than applied for like a loan, but it is still credit, and the rules now treat it that way. From 15 July 2026, BNPL providers must run an affordability check for all purchases⁸, and the checks must be proportionate to the amount borrowed⁵. Before offering BNPL, providers have to carry out affordability checks to ensure shoppers can manage the debt they are taking on²¹.

Spending limits are set by each provider, not by you, and they are not fixed for life. A provider may raise or lower what it will lend you based on how you have managed previous instalments, and each new purchase can be assessed on its own. If a purchase is declined, that is the provider's affordability assessment at work rather than a fault with your account.

The date matters more than anything else in this section. The new rules apply only to purchases made using BNPL on or after 15 July 2026. If you made a purchase before that date, these rules do not apply to you². Existing agreements continue under the existing rules, without the new protections such as Section 75 or access to the Financial Ombudsman Service⁵.

The government's stated aims for the regime are that people using BNPL receive clear information, avoid unaffordable borrowing, and have strong rights when issues arise²². How affordability checks work in practice is covered in the guide to loan affordability checks.

Credit checks and your credit file

When you choose BNPL at checkout, a lender carries out a credit check to make sure you can afford the repayments². Some providers carry out a soft credit check, and some carry out a hard credit check⁸. A soft check does not affect your credit score; a hard check is recorded on your file and can have a short-term effect.

The bigger change is reporting. BNPL lenders are now sharing information with credit reference agencies, including details of purchases, late payments and unpaid purchases²³. Most BNPL companies now report information to credit reference agencies²⁴. This means BNPL is visible to any lender that later reviews your file, including mortgage lenders.

What that means in practice:

• Missed payments on a BNPL agreement will show on your credit score and can make it harder to get credit in the future².
• Missed payments can be shared with credit reference agencies, and this affects your credit score⁸.
• A missed payment is typically added to your next scheduled payment on short-term BNPL, so the arrears grow before they are reported¹⁵.
• Even a fully repaid BNPL agreement leaves a record of the purchase and the repayments on your file²³.

Which? published an investigation in November 2021 into whether shopping with BNPL schemes can impact your chance of getting a mortgage¹³. Since then, reporting to credit reference agencies has become standard, so the file a mortgage lender sees is fuller than it was. The guide to how loans affect your credit file covers the mechanics, and credit scores and credit reports covers checking your own file.

Paying, moving a payment date and paying early

BNPL payments are usually collected automatically from a debit card, or sometimes a credit card, under a continuous payment authority. This is the same mechanism payday lenders use: the provider takes the payment on the due date without you having to approve each one. It is convenient, but it means the money leaves your account on the provider's schedule, not one you choose each time.

Some providers allow flexibility. Research for the FCA found that users could snooze repayments for a short time and were not charged a late fee straight away if late, receiving a reminder instead¹³. Whether that applies to a particular purchase depends on the provider and the agreement, and from 15 July 2026 providers must tell you before sign-up about your rights to withdraw from or cancel the agreement and to pay it off early⁵.

Paying early is generally allowed, and the new rules require that information about your right to pay off early is provided or made available before you sign up⁵. Because there is no interest on standard BNPL, paying early saves you nothing in interest; its value is in closing the debt and keeping your file clean.

If you want to stop payments being taken from your card, you can cancel the continuous payment authority. You can cancel by contacting the company taking the payment, or directly with your card issuer, which must stop payments immediately once you have asked¹⁵. National Debtline provides a template letter for withdrawing a continuous payment authority from a buy now pay later company²⁵. Cancelling the payment authority does not cancel the debt: you still owe the instalments, and cancelling without arranging another way to pay will lead to arrears. The narrow guide to stopping a continuous payment authority covers this step by step.

Returns, refunds and problems with an order

Because your credit agreement is with the BNPL provider, not the retailer⁸, problems with an order sit in an awkward place: the retailer has your goods or your money, but the provider has your debt. The rules now address this directly.

For a single item costing between £100 and £30,000 bought on or after 15 July 2026 using a BNPL provider, you are protected under Section 75 of the Consumer Credit Act 1974. Your BNPL provider is jointly liable in cases of faulty goods, non-delivery, or if the retailer goes out of business⁸. The legislation that created this put it in terms of strong rights under section 75 of the CCA, making it easier to obtain refunds for issues like faulty goods⁷. BNPL shoppers will also have fairer and faster access to refunds under the new regime²¹.

For purchases before 15 July 2026, the position is weaker. You cannot start a Section 75 claim if you paid using buy now, pay later for items bought before that date²⁶. Instead, you can ask for chargeback from your bank or card provider if you paid with a credit card or a buy now, pay later agreement and cannot use Section 75, or if you paid with a debit or credit card through a buy now, pay later provider²⁶. You can start a chargeback claim with the credit card provider you are using to make payments to your buy now, pay later account²⁶.

If the retailer stops trading altogether, Citizens Advice sets out the options for consumers, including chargeback where the payment route allows it²⁶. The guides to Section 75 on point-of-sale credit and your rights under the Consumer Credit Act cover the underlying law, and Klarna buyer protection covers that provider's own scheme.

FCA regulation of BNPL: what changed on 15 July 2026

For most of BNPL's life in the UK, it sat outside regulation. Many BNPL products were exempt from the requirements of the Consumer Credit Act and sat outside the FCA's regulatory remit, under an exemption in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001¹³. As a result, lenders did not need to be authorised by the FCA²⁷.

That changed in stages. The government consulted on draft legislation in October 2024²², published its consultation response on 19 May 2025²², and Parliament approved the regulation of buy-now-pay-later credit in July 2025²⁸. The rules came into force in July 2026²⁸, and the FCA started regulating Deferred Payment Credit, often known as Buy Now Pay Later, on 15 July 2026¹⁰. The legislation classifies BNPL agreements as regulated credit agreements under article 60B(3) of the RAO⁷.

What the new regime gives shoppers, for agreements taken out on or after 15 July 2026:

• Affordability checks before BNPL is offered, proportionate to the amount borrowed⁵.
• Clear information before sign-up: how much you are borrowing, the total cost, how much and how often you will repay, what happens if you miss a payment, and whether your credit record may be checked⁵.
• Section 75 rights on single items costing £100 to £30,000⁸.
• Financial Ombudsman Service access if you are not satisfied with the provider's response to a complaint⁵.
• Support in difficulty: lenders must offer support to customers in financial difficulty and, where appropriate, direct them to free debt advice²¹.

Clearpay was added to the FCA's register of lenders under the temporary permission regime on 29 May 2026¹⁰, which is the route firms used to continue lending while their full authorisation was processed. The narrow guide to whether BNPL is regulated by the FCA covers the detail.

Struggling to pay: hardship help and complaints

If you miss a payment, the rules now set out what must happen next. Your provider must contact you promptly, explain the consequences, and give you reasonable notice before taking further action, and must offer appropriate support and signpost free debt advice if you show signs of financial difficulty⁵. A missed payment is added to your next scheduled payment on short-term BNPL, and missed payments can be shared with credit reference agencies¹⁵.

The earlier position was harsher. Which?'s research recorded consumers being charged high fees and interest when they fell behind, and BNPL's unregulated status meant no ombudsman to appeal to¹³. From 15 July 2026, lenders must offer support to customers in financial difficulty and, where appropriate, direct them to free debt advice²¹.

Free, impartial help is available. National Debtline, StepChange and Business Debtline all publish BNPL guidance and give free debt advice³. Independent Age has a guide to different types of debt for people in later life¹². The FCA's own consumer page on buy now pay later sets out what regulated providers must do¹⁰.

To complain, take the problem to the provider first. For most BNPL agreements taken out from 15 July 2026 onwards, you can escalate your complaint to the Financial Ombudsman Service if you are not satisfied with the response³. The ombudsman can look at a complaint if you took out the agreement on or after 15 July 2026¹, and it expects to receive around 2,000 BNPL complaints during this financial year⁵. The guide to complaining about a lender covers the process, and what to do if you can't repay a loan covers the wider options, including the debt guide.