How student debt grows
Is it worth paying off part of a Plan 2 loan? Almost never, says Paul Lewis
It is rare nowadays to buy anything online or in many shops without being offered a deal to pay for it in several interest-free instalments. These deals are not currently regulated, but the Financial Conduct Authority has announced that from July it will impose the same rules on Buy Now Pay Later (BNPL) deals as on any other loan.
BNPN was introduced to Britain by the Swedish firm Klarna in 2014. Since then it has grown rapidly, with many other firms such as Zilch, Laybuy and ClearPay offering similar deals. In 2024 nearly 11 million people used a BNPL deal, borrowing more than £13 billion. It is now officially defined as interest-free credit repayable in up to 12 repayments over a year or less.
When the new rules start on 15th July, BNPL lenders must ensure the customer understands their rights and obligations as well as the potential risks of borrowing the money. It must check that the customer can afford to repay what they are borrowing and provide clear information about the loan and the repayments as well as what happens if they miss one. If a customer does default the lender must provide clear information about what action they must take and the consequences if they fail to do so. In addition, lenders will have to provide support to people who become over-indebted and refer them where appropriate to professional debt advice. Customers with complaints about lenders will be able to take their dispute to the Financial Ombudsman. The FCA hopes that once all firms follow the same rules, competition will work better and in the consumer’s interest.
Debt charities have warned in the past that the credit offered through BNPL is too easy to get and people often do not realise they are taking on a loan which adds to their overall debt. More people are seeking charities’ help after over-borrowing on BNPL, some using it for basic household bills such as food or school uniforms. Charities also stress that they are non-priority debts so people who are in difficulty should not try to pay them before priority debts, such as rent or mortgage, court fines, council tax and energy bills.
For more information, search ‘BNPL’ at fca.org.uk, stepchange.org, nationaldebtline.org, citizensadvice.org.uk.