Do people really understand buy now pay later agreements?

Mar 10, 2026 8:43:40 AM

14 min read

Cartoon style illustration of a confused person looking at a phone surrounded by buy now pay later payment icons, contract documents and warning symbols representing unclear financial agreements.

Written on: Mar 10, 2026 8:43:40 AM

Read time: 14 min read

Written by: Chris Fortune

Tags : Contract news Recent news Informed Consent

Buy now pay later has quietly become one of the most normal decisions we make online. Not because we have all sat down and decided that instalment credit is the future, but because it is now designed into the checkout experience.

And this is why recent headlines about Klarna, affordability, and new UK protections matter. The Financial Conduct Authority has confirmed that unregulated deferred payment credit, often described as buy now pay later, will come under FCA regulation and the Consumer Duty later this year.

Regulation will help. But I keep coming back to a simpler question that sits underneath all the policy changes and media coverage. Do customers actually understand the agreements they are accepting?

What this blog contains

The BNPL moment we are in
Why BNPL is growing so quickly
The regulatory shift
The real problem is understanding
Legal consent and informed consent
What better BNPL agreements could look like
Why this matters for the future of finance
Links and references

The BNPL moment we are in

Let’s start with scale, because it explains why this has moved from a niche product to a societal conversation. In its Financial Lives research, the FCA reports that deferred payment credit, the category it uses to describe unregulated buy now pay later, was used by 20% of UK adults in the 12 months to May 2024. That is 10.9 million people. It is also not evenly distributed. The FCA notes higher use among lone parents, women aged 25 to 34, and Black adults.

And while many people use it occasionally, a meaningful proportion use it frequently. The FCA reports that 1.9 million adults used deferred payment credit ten or more times in the previous 12 months, and that frequent users were more likely to show markers of low resilience and financial difficulty. So, buy now pay later is not simply a convenience feature for the financially comfortable. It sits right inside the lives of people who are budgeting, juggling, and often trying to spread risk across the month. That matters for one reason above all. When a product is used at scale by groups more likely to be financially stretched, the quality of communication stops being a “nice to have”. It becomes part of consumer protection.

Why BNPL is growing so quickly

Most analysis focuses on the fact that buy now pay later looks cheap and feels easy. That is true, but it is not the full story. MaPS, through research it commissioned with the Behavioural Insights Team, describes three drivers that explain adoption: awareness, accessibility, and affordability. It also highlights that people are increasingly using buy now pay later for day to day essentials, not just occasional discretionary purchases.

The FCA’s Financial Lives findings line up with that. Over half of deferred payment credit users said they use it to help them budget or to buy goods they could not afford to pay for in one go. There is also a behavioural point that rarely gets talked about plainly. At the moment you choose buy now pay later, you are not “taking out credit” in the way you would if you were applying for a personal loan. You are selecting a payment option next to card, PayPal, or Apple Pay, often while tired, distracted, and trying to complete a purchase.

The FCA’s own research on deferred payment credit explicitly flags this as part of the risk picture: the product can be misunderstood as a form of payment rather than a form of credit, and it can be sold in ways that exploit behavioural biases, such as being set as a default option at checkouts. In other words, the growth of buy now pay later is not only about consumer preference. It is also about design choices that reduce the feeling of friction in the moment that matters most.

The regulatory shift

If you have been following “BNPL regulation UK” updates, the key change is simple: unregulated deferred payment credit is moving into the FCA’s perimeter. The FCA has confirmed that buy now pay later borrowers will receive stronger protections from mid July 2026, with the sector brought under FCA regulation and subject to the Consumer Duty. In the FCA’s summary, the protections include:

Clear information about the agreement upfront, including payment amounts, due dates, and what happens if a payment is missed.
Affordability checks that are proportionate, before offering deferred payment credit.
Support for customers in financial difficulty, including signposting to free debt advice where appropriate.
Complaints access through the Financial Ombudsman Service if something goes wrong.

The FCA also sets out crucial scope details that most people miss when they read headlines. Deferred payment credit will be regulated in certain third party lending arrangements, but not all forms of “pay later” will fall into the same bucket. And the FCA notes that deferred payment credit agreements taken out before regulation day will remain unregulated.

So regulation is not a magic wand. It is a baseline. It upgrades protections, raises expectations, and forces consistency. But it does not automatically solve the human problem, which is that people still have to take in, process, and remember the terms they agree to. That is why I see this moment as bigger than buy now pay later. It is a signal of where the entire financial services sector is going: away from disclosure as a box ticking exercise, and towards evidence of real consumer understanding.

The real problem is understanding

Here is the uncomfortable truth. Most of our digital consent is performative. We have built an internet economy around a ritual where people click “accept” and move on. Empirical studies consistently show that when people are presented with long online terms, engagement is tiny. In one well known experimental study, average observed reading times were measured in seconds, even though predicted reading time for the full text would have been many minutes. The vast majority of participants agreed to terms anyway.

And this is not limited to social media or privacy policies. It is a predictable response to information overload. One survey often cited in this area found that a very high proportion of consumers agree to terms without reading them, particularly younger adults. Now apply that reality to a credit decision made at checkout, often on a phone, often in a rush. It becomes difficult to argue that “the information was available” is the same thing as “the customer understood it”. We can see the consequences showing up in advice and support channels. Citizens Advice has said that it helped 7,468 people with a buy now pay later issue in 2025, and 844 people in the first month of 2026, with debt repayment issues being the dominant theme.

Separately, Fair4All Finance highlights a striking understanding gap: its analysis reports that four in ten users still do not identify buy now pay later as a form of debt. And Citizens Advice has argued for years that the customer journey at checkout often lacks sufficient care and information, with some users being referred to debt collectors despite not being warned about this at checkout. In other words, the “buy now pay later risks” conversation is not only about APRs or fees. It is about whether the product is presented and understood as credit, with real consequences, rather than as a harmless payment choice.

Klarna terms explained, in plain English, shows how easy it is for the detail to slip past people at the point of sale.

Klarna introduced late fees in the UK with a headline structure of up to £5 per missed payment, with caps linked to order value and limits on how many fees can apply per order.
Clearpay’s published help pages describe an initial late fee and a further fee if the payment remains unpaid after a period, with overall caps such as the lower of a fixed amount and a percentage of order value.
The FCA is explicit that, under the new regime, firms will have to disclose information including how much any late fee will be, and the rights and protections a customer will have.

None of this is “hidden” in the sense that the information does not exist. The problem is that the decision environment is not designed for learning. It is designed for completion. The FCA’s own research on deferred payment credit frames potential harms in terms that are, at heart, about understanding: information asymmetries, behavioural distortions, and consumer protections that people may not realise they do or do not have.

Legal consent and informed consent

There is a reason the FCA’s Consumer Duty has become such a big topic, even beyond traditional “compliance” circles. It reframes the standard from “did you disclose?” to “did you deliver a good outcome?” At the core of the Duty are four outcomes, one of which is consumer understanding. The FCA also makes clear that firms must consider how customers behave at every stage of the customer journey, including those with characteristics of vulnerability.

This is the moment where the difference between legal consent and informed consent matters.

Legal consent is the customer taking the required action: ticking the box, clicking accept, signing.
Informed consent is the customer being put in a position to understand the key terms, risks, and implications before agreeing.

This is also why buy now pay later regulation is about more than licences and permissions. It is an attempt to force better “decision architecture” into a process that has historically been optimised for speed and conversion.

If you want the deeper philosophy behind this, that is the lens we use at i agree. We treat agreement as a communication outcome, not a document outcome. It is why our thinking starts with informed consent and not just signatures. Read our page on informed consent beyond signatures at i agree. And because understanding is shaped by context (time pressure, financial stress, device, language, confidence), we also look at how to capture that decision journey, not just the final click. See what we mean by context contracts at i agree.

What better BNPL agreements could look like

When I say “better agreements”, I don’t mean longer explanations. I mean clearer ones, delivered in a way that fits the moment, and creates evidence that the customer understood the material points. Regulation will require clearer information. The FCA says firms must give customers information before they take out a deferred payment credit agreement, including the amount borrowed, repayment timing and amounts, late fees, and the rights and protections that apply.

So the question becomes: how do you deliver that in a way that people actually absorb?

Start with a “key facts” layer that is built for scanning

Put the three or four material terms in a simple, consistent format: total cost, repayment schedule, consequences of missing a payment, and whether missed payments may affect credit reporting.
Make it accessible in the moment, not buried behind expandable sections that most people will never open.

Make the product identity unambiguous

If large numbers of users do not identify BNPL as debt, then the interface is not doing its job. Use plain terms like “this is credit” and “this is debt you must repay”, even if it slightly reduces conversion.
Explain the difference between “payment convenience” and “credit agreement” in one sentence, not one page.

Add light friction at the right moment

Friction is not always bad. If the friction forces attention to the material terms, it can reduce foreseeable harm. That logic is embedded in the FCA’s cross cutting expectations and its focus on consumer understanding.
Think of this as the opposite of dark patterns. You are allowed to slow people down when the decision carries risk.

Use comprehension signals, not just disclosures

A simple example: ask the customer to confirm they understand the repayment dates and the consequence of missing a payment, before they proceed. This is not about trick questions. It is about surfacing whether the message landed.
At i agree, this is part of how we think about proving understanding: not “we sent it”, but “they engaged with it”. See the behavioural science lens we use at i agree.

Build support into the journey, not just into arrears

The FCA’s research shows that missed or late repayments are not rare. It notes that, on average, 10% of transactions in January 2023 had at least one missed or late repayment, and some late repayments incurred fees. That is exactly where reminders, budgeting nudges, and clear repayment schedules matter. MaPS research on BNPL interventions found that people were most supportive of repayment reminders, which some providers already offer. And under the new regime, support is not optional. The FCA expects lenders to offer support to customers in financial difficulty and direct them to free debt advice where appropriate.

Keep a “receipt of understanding”, not just a receipt of purchase

Most disputes happen weeks later, when the customer has forgotten what they clicked. A short, plain language summary that is easy to retrieve can reduce confusion and downstream complaints.
This is an area where agreement design can borrow from education: repetition and multi format communication can help people remember key information. Our behavioural science insights blog at i agree goes deeper on why retention matters.

If you want a practical illustration of how we turn agreements into guided experiences, this is the step by step workflow behind i agree. How i agree works.

Why this matters for the future of finance

Buy now pay later is a pressure test for the next decade of financial services. Not because it is the biggest product in the market, but because it exposes a tension that has been building for years. On one side, digital journeys have been optimised for speed. On the other, regulators now expect firms to take responsibility for whether their customers understand the product, not merely whether information exists somewhere on a page.

The FCA’s research paints a nuanced picture that is worth taking seriously. Its Occasional Paper on deferred payment credit finds that DPC users are, on average, more vulnerable than the wider UK population, and almost twice as likely to be in serious financial distress, even while the paper does not find consistent evidence that DPC borrowing causes medium term financial distress on average.

Fair4All Finance makes a similar point from a different angle: regulation is necessary, but there can be trade offs, including the risk that over cautious restrictions could exclude vulnerable users who need safe credit options, and the continued misunderstanding by many users that BNPL is debt.

That combination creates a clear design challenge for the industry.

Make it harder for people to stumble into debt they do not understand.
Make it easier for people to use credit intentionally, budget realistically, and get support early when things go wrong.

Conclusion

The issue is not whether buy now pay later can be useful. For millions of people, it already is. The issue is whether the agreement experience has been designed for real understanding, in the real conditions people make decisions. If regulation is the new floor, then consumer understanding is the new ceiling. That is where trust will be won and lost in modern finance.

If you are thinking about this from an agreements perspective, these pages add context without repeating this blog: i agree principles, consumer understanding and disputes at i agree, and the future of agreements with voice and video at i agree.