The Salary Calculator

Buy Now, Pay Later: How Does it Work and What’s Changing?

by Madaline Dunn

Buy Now, Pay Later (BNPL) use has surged in recent years. From fridges and fashion to air fryers and furniture, more and more people are choosing BNPL payment plans to foot the bill — including for their summer holidays, according to information and insights company TransUnion.

A recent Loqbox report shared similar findings: among parents, BNPL use for summer travel now sits at 8.4%. This reflects a shift from 2024, it said, when such products were used as “back-up options.”

But consumers aren’t just using BNPL for big-ticket items. Research from the credit-building business revealed that, in the UK, one in 10 are now using BNPL to cover basics like food and fuel. 

And BNPL is not without risk. Unlike other types of credit, BNPL has remained unregulated, with debt charities and consumer experts alike sounding the alarm.

However, regulation to tame this “wild west” is on the horizon. Amidst these upcoming changes, this week at The Salary Calculator, we’ll walk you through: 

• What is Buy Now, Pay Later
• What’s driving BNPL use?
• What risks are associated with BNPL 
• What regulatory changes are incoming? 
• How can consumers protect themselves against unmanageable debt? 

What is Buy Now, Pay Later?

The BNPL market has quadrupled in size since 2020, and in the year to 2024, nearly 11 million people used these kinds of products, up from 8.8 million in 2022.

While BNPL has seen a recent growth in popularity, this kind of short-term financing — which enables shoppers to spread the cost of a purchase across a few weeks or months — has been around for over a decade.

And although BNPL is typically an interest-free form of credit, it’s still a loan.

When consumers use products from companies like Klarna or Clearpay, they’re agreeing to pay back the full cost and any late charges for missed payments. 

What’s Driving BNPL Use? 

For consumers, BNPL products can appear more accessible and convenient than traditional forms of credit. 

Indeed, BNPL offers are increasingly advertised at checkout. There are now over 20,000 merchants offering BNPL — both online and in-person — and that number is only growing. 

Likewise, some of these financial loans only require a soft credit check that’s not visible to other credit providers, which can make BNPL an appealing option for those without a strong credit history. 

And with the cost of living remaining high, the perceived affordability of this kind of credit among consumers is also a key driver in its growth, research shows.

“There is a crossover between BNPL use and people struggling with their finances”

Beyond this, some research has suggested that BNPL’s success is rooted in its “effective” use of artificial intelligence (AI) and algorithms.

So, who’s using these products the most? 

Research from Finder showed that BNPL is now most popular among Millennials, with 60% using such products “at some point,” followed by Gen Z (56%).

A number of factors underpin this trend, from a wariness of traditional credit and credit card approval challenges to a dissatisfaction with traditional banking services.

BNPL use is also high among those living in the most deprived areas of the UK and those with low financial resilience, according to the Financial Conduct Authority’s (FCA) recent Financial Lives report.

“Our research has suggested there is a crossover between BNPL use and people struggling with their finances,” said Simon Trevethick, head of communications at StepChange Debt Charity, adding, “Previous polling found that those who use BNPL are twice as likely as the general population to need to use credit to cover essential bills.”

This is corroborated by findings from the Money and Pensions Service, which revealed that 38% of BNPL users need “full debt advice,” and 35% are “at risk of needing debt advice.”

What risks are associated with BNPL?

While BNPL can appear an attractive option, it’s not “free credit” and carries with it potential risks.

Despite this, research points to a lack of consumer awareness regarding the costs of BNPL.

 “It’s a form of credit—and should be treated with the same caution”

In a study conducted for the Lending Standards Board (LSB) by RFI Global, only 52% of BNPL users reported being aware of late payment fees, while 50% were unaware of potential fees before incurring them.

Similarly, research from the Behavioural Insights Team (BTI) found that, of those surveyed, four in ten were unaware that they could be approved for BNPL “even if they could not afford it.”

“Consumers often fall into the trap of treating BNPL like an extension of their disposable income,” said Matt Dronfield, the managing director of Debt Free Advice. “In reality, it’s a form of credit—and should be treated with the same caution.”

Debt Free Advice added that BNPL can make things “seem affordable when they’re not,” encouraging impulse buying and overspending.

Indeed, one piece of research found that BNPL users spend 6.42% more than those who do not. Meanwhile, data from the BIT showed that 38% of those surveyed had “spent more than they planned because BNPL was available.”

Debt Free Advice also noted that because BNPL companies all work differently, it’s easy to lose track of what is owed, and consumers can end up borrowing more than they can afford.

In 2024, Finder’s survey found that in the last 12 months, 53% of those who had used BNPL had been charged late fees. 

And because companies often take payments straight from the consumer’s card, if the first try fails, they can try again. This can bring people into their overdrafts or result in insufficient funds for essential bills, said Debt Free Advice.

What regulatory changes are incoming? 

Efforts to regulate BNPL have been in the works for some time, and in July, it was announced that from July 2026, BNPL will be subject to the same protections as other forms of credit. 

Debt Free Advice explained that the new rules will require BNPL firms to review whether consumers can afford payments, while also clearly explaining their terms.

The regulations mean that customers will have faster access to refunds and the right to complain to the Financial Ombudsman to ensure complaints are dealt with fairly. 

“Regulation will help make these services safer and more transparent”

The changes will also reduce what Trevethick called “excessive” marketing at checkout and provide consumers with “additional protections at a time when they are most needed, as cost of living pressures remain.”

Indeed, Debt Free Advice noted that linking BNPL to credit agencies can help “stop people from borrowing too much or harming their credit score without realising.”

That said, it shared concerns about how strong the new rules will be during the changeover, adding that lenders should do more, including by pointing people to free debt help early, before “problems get worse.”

“We’ve seen a sharp increase in clients coming to us with BNPL-related debt. Regulation will help make these services safer and more transparent—but education is still key,” said Dronfield.

How can consumers protect themselves against unmanageable debt? 

With a year until the BNPL regulations come into place, debt charities warn that users need to ensure that they’re using products safely and sustainably. This includes changing the way that consumers approach this kind of credit.

“If you wouldn’t use a credit card for the purchase, reconsider BNPL,” said Debt Free Advice. 

Likewise, it’s important to assess whether BNPL is an affordable option.

“While it’s an interest-free product, if you miss a payment then you can still get struck with late fees, so it is essential to make sure that any BNPL repayments will be affordable before using the product,” said Trevethick. 

Once taking on BNPL, Debt Free Advice said it’s key to track, budget, and plan. This means keeping careful watch of all your BNPL commitments, how much you owe and the due dates for each to “avoid accumulating debt.” 

Keeping to one provider can also help users avoid stacking multiple purchases, the charity said. 

Trevethick echoed this: “At StepChange, we have seen clients with multiple BNPL debts across different providers.”

Debt Free Advice also warned against relying on BNPL for necessities: “It’s a sign you may need debt advice.” 

And, if you’re struggling with repayments, contact a free, impartial debt advice service:

• Debt Free Advice
• StepChange 
• Citizens Advice 
• National Debtline 

 

Tags: BNPL, Buy Now, Loans, Pay Later

The ins and outs of Equity Release

by Madaline Dunn

According to research, the number of new and returning equity release customers reached 93,421 in 2022, meaning more people are choosing these products and it’s likely that the cost of living crisis has something to do with it.

Legal & General, for example, which is one of the UK’s largest equity release lenders, outlined that 25% of those taking out loans are now doing so to supplement their income; this is reportedly up from 19% in the previous year.

You might be wondering whether equity release is a good option for you, or you may be new to the term and keen to learn more; either way, at The Salary Calculator, you’re in good hands. This week, we’ll explore the following:

• What equity release is and the different types
• The advantages of equity release
• The drawbacks
• The Equity Release Council’s new guidance

What is Equity Release?

Equity release products enable you to access the equity (money) tied up in your home as you get older. There are two main types of equity release, the first being Lifetime Mortgages, which allow you to take out either a lump sum or instalments of cash against the value of your home, while retaining ownership. Typically, you can borrow between 20% and 50% of your home’s valuation, and the amount you can take out, will depend on your age.

You can begin to access these plans from age 55. Interest is applied on an increasing sum, meaning that your interest is added to your debt on a continual basis. That being said, you’ll never pay more than the value of your home. The loan and any interest will be paid off by selling the property when you either pass away or move into long-term care. Statistics show that these kinds of equity-release products make up around 95% of the market.

Home reversions, on the other hand, are offered to those aged 60 and up, and with this product, you don’t retain ownership of your home, or at most, only part of it (between 25% – 100% is sold). While you give up full ownership of your house with home reversions, you maintain the legal right to remain in your home until you die or move into long-term care. Likewise, your lender will pay you less than the market value of your home.

To find out which equity release product best suits your needs, it’s worth speaking with an equity release advisor; if you choose to take one out, you’ll have to do it through a financial adviser, too. The former will take into consideration a number of different factors in their recommendation to you, including:

• The value of your property
• Your current and future financial and lifestyle requirements
• Your age

The advantages of equity release

When it comes to assessing the advantages of equity release, it’s worth noting that in both versions of equity release, any of the cash that you receive is tax-free, and you won’t find yourself in negative equity because, when your property gets sold, additional debt not covered by the property sale will be written off. Likewise, you can take money out of your home when you need it, and aren’t required to make monthly repayments.

Further, you also have the right to move home, and take your mortgage with you, so you’re not bound to one property.

Similarly, with both, you can opt to pay back your loan or buy back your home, however, it’s worth bearing in mind that this can cost you quite a bit. The same goes for paying your loan off early, it is doable, but you may be hit with early repayment charges.

The drawbacks

While there are undoubtedly some attractive qualities to equity release, there are some downsides, too, which are worth taking into consideration. With lifetime loans, for example, you could end up in a position where you owe more than you borrowed when the home comes to being sold. Although, there are ways out of this, and you can decide to pay off the interest each year as you go. To make things more bitesize, you can also opt for a series of smaller lifetime mortgages.

When it comes to equity release, you may also impact your entitlement to mean-tested state benefits, this includes Pension credit, savings credit and council tax benefit, so be wary. You will also encounter lender fees, solicitor fees, and equity release advisor fees; expect to spend between £2,000 and £3,000.

More generally, opting for equity release also means that you might leave behind less inheritance for your family when you pass on.

With home reversion, on the other hand, you can only receive a maximum of 60% of the market value of your home, and in more cases than not, it will actually be much less than this.

Equity Release Council releases new guidance

When thinking about pursuing equity release, you can be safe in the knowledge that all firms that either advise on or sell equity release are regulated by the Financial Conduct Authority (FCA). That being said, it’s wise to make sure you go with a company that is a member of the Equity Release Council. Members follow a voluntary code of conduct, which ensures certain product standards.

There have been recent updates in this area, too. The council recently released its consumer guide, which advises potential customers on fees, enabling them to understand what they mean and compare fees and charges across different equity release deals. The council is also recommending that equity release advisors adopt the language in the guide to simplify things for customers and make it more accessible. The guide can be found here.

Speaking about this, Jim Boyd, CEO of the ERC, explained that customers are often presented with unfamiliar terms and definitions, and to complicate matters further, different firms often use slightly different language, which can complicate things for customers.

He outlined: “The council’s guidance describes all the fees and charges that could be relevant to an equity release application, depending on its complexity. Our aim is to establish a set of standard definitions to help consumers to understand their options as they explore the equity release process with a regulated adviser.”

He added that the council understands that adopting changes takes time, but that the arrival of the “Consumer Duty” is a chance for the industry to take stock and “move towards a standardised approach.” “We hope all firms will take this guidance on board when they next revisit their approach, so it becomes the standard across the equity release market,” he said.

Tags: Consumer goods, Equity release, home, Loans

Credit scores unpacked and myths debunked

by Madaline Dunn

With the cost of living crisis shooting up rent, food and fuel prices, an increasing number of people are turning to loans, credit cards, and overdrafts. Of course, a good credit score is often required to qualify for a low-interest-rate loan, so many people are now trying to determine what their credit score is and find ways to improve it. In fact, MoneySuperMarket’s data reveals that searches for ways to increase credit scores have increased by 506% in the last ten years alone.

However, despite so much hinging on a credit score, many people in the UK believe that the current system is not “fit for purpose.” Nearly 40% (39%) of people believe it’s unfair to judge a person based on financial decisions that they made up to five years ago, while 38% believe that credit scores don’t reflect their current livelihood and 34% believe that credit scores, in general, aren’t a good measure of a person’s creditworthiness. In general, credit scores can cause people a lot of concern and there are a lot of myths and misconceptions out there.

At The Salary Calculator, in this article, we’ll:

• Explain what a credit score rating is
• Dispel some of the myths that exist around credit scores
• Explore some of the ways you can improve your credit score

What is a credit score rating?

A credit score rating, at its core, is a way of measuring how much of a risk a person is when it comes to lending them money. FICO and VantageScore are the two main consumer credit scoring models, while Experian, TransUnion, and Equifax are the three national credit bureaus that offer different ratings. The former, for example, considers anything above 881 to be a good score, while the latter considers anything above 531 ‘good.’ TransUnion, on the other hand, considers scores above 720 a good rating.

A credit score rating is determined by a number of different factors, including:

• Your payment history – This means looking at whether you pay your bills on time and whether you’ve ever filed for bankruptcy. This is arguably the most important factor considered when calculating your score.
• Credit usage – This includes how much you owe in loans and how many of your accounts have balances.
• Length of your credit history – Money lenders like to see that you have a long history of paying on time.
• New credit – Applying for new credit can lead to a hard inquiry and lower the average age of your accounts.

Myths and misconceptions

When it comes to credit scores, many people are truly in the dark, and due to the myths and misconceptions floating around, just the mention of credit scores can cause people to spiral. Below we’ve compiled a list of the top myths:

Checking your credit score will negatively impact it – False

You can check your credit score as much as you like without it negatively affecting it. In fact, it can even be an indicator of financial responsibility.

Your credit score is impacted by your income – False

Your credit score is not impacted at all by your income and, in fact, only considers information found in your credit report, so, as outlined above: Your payment history, credit usage and length of your credit history. That said, if you were to lose your job or take an earnings hit, this could affect your rating indirectly in that it could detrimentally impact your ability to pay back your loans.

Paying off debt means it won’t affect your credit score – False

Unfortunately, even if you’re proactive in paying off your debt, the record of it can remain in your credit history for seven to 10 years.

My loan application will be rejected if I have a low credit score – Not always

You won’t always get a loan application rejected if you have a low credit score. However, you might be offered higher interest rates or a smaller loan.

How can you improve your credit score?

If you have a low credit score and you’re concerned that it’s going to detrimentally impact your future financial decisions, don’t worry, there are a few things that you can do to boost it.

First of all, it’s a great idea to keep up-to-date with how things are looking, so the experts suggest signing up with a tool like MoneySuperMarket’s Credit Monitor. This way, you’ll be able to check whether or not you’re veering into the red, and employ some of the below steps to steer you back on track.

Likewise, it’s important to keep your accounts up-to-date. So, if you’ve got an old bank account that hasn’t been used for years, it’ll be better for your rating if you close it. On the other hand, keeping open a bank account that you regularly use will positively impact your credit score.

Of course, paying bills on time is a big must for boosting your credit score, but be sure to check which ones count towards it – as only some of them do. And, also don’t forget to try and keep balances low on your credit cards, and try your best to pay more than the minimum required on your credit card, too.

Tags: Credit card, Credit score, Economy, Loans

The rising cost of living, loans and borrowing

by Madaline Dunn

Research shows that as the cost of living continues to rise, so too is borrowing – whether that’s via credit cards, or payday loans. While it can be tempting to opt for a loan in financially trying times, it’s important to keep your wits about you, and not rush into a decision without thoroughly researching.

At The Salary Calculator, we know how challenging it can be navigating the world of borrowing and loans, so below, we’ve outlined some top tips to bear in mind to keep yourself safe. This article will explore:

• Why the cost of living is getting more expensive
• How more people are borrowing than ever
• How to protect yourself when borrowing

How is the cost of living getting more expensive?

The cost of living has reached crisis levels, leaving many in UK faced with their worst financial situation in decades. Fuel, housing, and food are all getting more expensive. According to the ONS, in February, Inflation hit a new 30-year high of 6.2%, and housing costs and services increased by 7.2% within the last year, too. Moreover, rental prices went up 2.3% and homeowners saw a hike of 2.5%.

Within the same time frame, transport costs have seen an increase of 11.5%, with petrol and diesel prices rising and even hitting record levels in February. Meanwhile, food and drink prices have soared by 5.1% – according to statistics, prices for bottled water, soft drinks, juices, meat, sugar, jam, syrups, chocolate and sweets increased the most.

Looking ahead, as the Russia-Ukraine war continues, with Russia and Ukraine being responsible for 30% of global wheat exports, food prices are only set to rise further.

It’s not just food, fuel and housing that’s seen a hike, either. Clothing and footwear have taken a hit, too, rising by 8.9%. Likewise, furniture, household equipment and maintenance saw a similar increase, rising by 9.2% in the past year.

Alongside the price rises, wages across the UK are now falling at their fastest rate since 2014. This is, again, because inflation is spiralling out of control.

More people borrowing than ever before

People across the UK are feeling the pinch as prices continue to soar and are turning to borrowing to help them cope with increasing financial hardship. According to figures published by the Bank of England (BoE), people borrowed a net £1.5 billion on credit cards in February, which is reportedly the highest since records began. This is even up from 2020, which saw nearly 9 million of the UK’s poorest significantly increase their borrowing amounts.

Joanna Elson, the chief executive of the Money Advice Trust, which runs the National Debtline and Business Debtline, said these borrowing statistics are “an indicator of the underlying challenges households face in meeting the growing cost of living” as she called on the chancellor to provide more targeted help for hard-pressed households.” Adding: “Our concern is that more people will be pushed to credit to cover rising bills, which could be storing up problems further down the line when repayments are due.”

Of course, credit card borrowing is not the only kind of borrowing, payday loans are lurking out there, too and according to reports, interest in these kinds of loans has been ballooning in recent months as living costs surge. Research from Raisin UK has found that in the last 12 months, internet searches for these kinds of loans shot up by 350%.

Experts, however, warn that payday loans, while sometimes attractive, are an easy route into a slippery path of debt. Kevin Mountford, Co-founder of Raisin UK, outlined: “It is easy to fall into a cycle of debt with these schemes if you continually require them to cover shortfalls. With rising interest rates, payday loans will most likely leave you struggling financially, even more as you will owe these companies a continually growing amount of money.”

Adverts for this kind of predatory loan are on the rise and appearing on Google, too. A recent report found that those who searched terms like “quick money now” and “need money help”​ were directed by Google to sites offering high-interest loans to those in financial difficulty. One site advertised when individuals searched for the above terms was Tendo Loan, which offered “Cash in 10 minutes guaranteed. 3-36 months. No credit check!” The site went on to say that those looking to find a loan could have it “delivered faster than pizza!”

How to protect yourself when borrowing

It’s undeniable that millions of people in the UK are facing increasing financial hardship, and predictions are that it is only going to get worse. By 2023, it’s said that as many as 16 million people could be officially classed as living in poverty. So, it’s understandable that some may be faced with no other option than to borrow. That said, when borrowing, regardless of who you’re borrowing from, it’s important you safeguard yourself. Below, we’ve highlighted some top tips.

Research, research, research

When financially desperate, it’s easy to get caught up in signing a loan that you know little about. So, it’s important to make sure you research. Research into the company, make sure that they’re reputable and trustworthy, and get all the facts about the loan, including and especially the small print.

Don’t get conned into borrowing more than you asked for

Lenders may try and talk you into borrowing more than you were looking for or encourage you to opt for a different kind of loan. Make sure whatever decision you make is informed, and not pressured. Take your time, and stick to your guns.

Don’t overcommit, and make sure you can pay back whatever you borrow

Make sure you review your finances before committing yourself to a loan. Entering an agreement with high-interest rates may lead you down a debt hole that’s hard to get out of, and leave you in a worse position than when you started.

Tags: borrowing, interest rates, living costs, Loans

A guide to ‘Buy Now, Pay Later,’ deals, the dangers and safeguards

by Madaline Dunn

In recent years, ‘Buy Now, Pay Later’ deals (BNPL) have become increasingly popular and were particularly boosted by the pandemic, which created a significant increase in online shopping. Data from the FCA recently revealed that in 2020, the use of BNPL nearly quadrupled and is now at £2.7bn.

These deals offer buyers the option to pay for their purchase over a period of time, rather than all at once, and have been dubbed by some as “the future of millennial finance.” However, while this once niche form of credit has benefits, it’s not without its dangers. More and more people are raising concerns that it encourages unsustainable spending, leaving many with debts they can’t pay off. 

At The Salary Calculator, we’ll help you understand:

• The ins and outs of BNPL
• Why BNPL deals can be dangerous
• The safeguards out there to protect you from harm 

What is ‘Buy Now, Pay Later’?

Buy Now Pay Later (BNPL) agreements allow buyers to purchase items on credit and pay for them later down the line, typically through interest-free instalments. For many, this seems like a relatively hassle-free payment method and has been primarily adopted by the under 30’s demographic.

There are a few different types of BNPL deals, the first works on the basis of a buyer splitting their payments into segments, typically with an upfront payment. Following the first payment, the buyer agrees for the provider to take the rest of the money over an agreed period of time. 

Another example of a BNPL deal works by the buyer delaying their payment for purchase for a set number of days, usually between 14-30 days.

The final form of BNPL involves arranging a formal payment plan at the point of purchase, and the buyer may have to pay interest and may have their means-tested.

Some examples of BNPL providers include Clearpay, Laybuy and Klarn, the biggest provider.

Speaking about the draw of BNPL to The Guardian, one BNPL investor said: “It increases the basket size, and it also reduces dropped baskets.”

Why are BNPL deals dangerous? 

Of course, as with anything, there are drawbacks to BNPL deals, and they have the potential to put consumers at significant risk.

Speaking about the dangers associated with BNPL deals, Sue Anderson from StepChange, a debt charity, said: “Buy now, pay later services don’t give individuals enough time or protection to stop, pause and understand the consequences of their purchase. Sometimes this even means people end up using BNPL at the online checkout without actually realising they have signed up.”

She added: “Second, affordability checks are only used by some BNPL lenders, and protections against taking out multiple BNPL loans are lacking. Finally, due to a lack of regulation, it’s not clear whether these services are treating customers fairly and in a way that is consistent with other credit products.”

Meanwhile, Citizens Advice likened BNPL deals to “quicksand” in that they’re “easy to slip into” but “very difficult to get out of”.

Of course, BNPL deals don’t take into consideration circumstance changes either.

This year, in response to these concerns, the government announced this area would be regulated by the Financial Conduct Authority (FCA) due to the risk posed to consumers. Now a consultation is underway to assess how to navigate the regulation issue.

What safeguards are out there to protect buyers from harm?

For a long time, personal finance experts have called for regulation around BNPL deals, and now it appears the government is finally taking heed with their consultation.

Going forward, the government is proposing that BNPL users should have the ability to take complaints to the independent Financial Ombudsman Service. On top of this, the government has also proposed that advertising and promotions relating to BNPL should be regulated by, for example, the Advertising Standards Authority or the Committees of Advertising Practice.

Moreover, the government says that statutory protection should be outlined under Section 75 of the Consumer Credit Act. Further protections have been suggested in the form of compulsory credit checks so that those who wish to take on BNPL products can afford to do so. 

The consultation ends at the beginning of next year, so it’s unlikely we’ll see any immediate changes. That said, in the meantime, when encountering BNPL products, it’s important to ask yourself the following questions:

• Can I afford the repayments?
• Are there better options out there regarding borrowing?
• Am I interested in buying this item because of the BNPL offer?

Tags: Loans, Money, savings, The Salary Calculator