analysis · 7 min read
The real cost of buy-now-pay-later.
Buy-now-pay-later (BNPL) services — Klarna, Afterpay (Clearpay), Scalapay, Oney, Floa, PayPal Pay in 3, Sequra, and others — have become a standard checkout option across European e-commerce. The headline proposition is straightforward: split a purchase into instalments at zero interest. The underlying economics, however, contain less-visible costs that materially affect a buyer’s position. This article explains how BNPL works commercially, where the costs actually sit, and how the EU regulatory framework changing through 2026 affects buyers.
How BNPL providers earn revenue
The principal revenue source for BNPL providers is the merchant fee. The retailer pays a percentage of order value — typically 2 to 6 percent — to the BNPL provider in exchange for the conversion uplift, average-order- value increase, and risk transfer that BNPL enables. This is structurally similar to a payment-processor fee, except that BNPL also takes the credit risk of the buyer not paying. Secondary revenue sources include late-payment fees on consumer defaults and interest on longer-term financed plans (the “0 percent” offer is the marketing edge, but longer-term plans typically carry conventional interest rates).
What is actually free
The standard short-term BNPL product — pay in 3 instalments, pay in 30 days, pay in 4 — is genuinely interest-free for the buyer provided every instalment is paid on schedule. There is no per-transaction fee charged to the buyer. The merchant absorbs the BNPL provider’s fee, and this cost is bundled into general retail pricing the same way credit-card processing costs are. A buyer paying every instalment on time pays exactly the headline product price.
Where the costs accrue
Costs arise primarily from missed or late instalments. Late-payment fees vary by provider, jurisdiction, and product, commonly ranging from €5 to €15 per missed payment, with caps relative to order value in most European markets. Some providers also charge a re-attempt fee. Longer- term financing (6, 12, 24 months) typically carries explicit interest at rates ranging from approximately 5 to 25 percent APR, comparable to consumer credit-card rates. A buyer using BNPL for budgeting purposes who completes every payment on time bears no cost; a buyer using BNPL as a substitute for credit they cannot service incurs costs that compound rapidly.
Credit-impact considerations
Until recently, short-term BNPL use in most European jurisdictions did not appear on conventional credit bureau records. This is changing. In the UK, the Financial Conduct Authority is bringing BNPL under regulated credit oversight; Germany’s SCHUFA already records some BNPL activity; Sweden, the Netherlands, and other markets have moved similarly. By 2026 a missed BNPL payment is increasingly likely to affect a buyer’s future credit assessment. The reputational cost of late payment is now comparable to other unsecured credit obligations.
The new EU Consumer Credit Directive
EU Directive 2023/2225, replacing the 2008 Consumer Credit Directive with effect from November 2026, explicitly brings BNPL within the consumer-credit framework. Providers will be required to conduct creditworthiness assessments, disclose total cost of credit in standardised format, and apply consumer-protection rules previously limited to traditional credit. The effect on the buyer experience will be a small additional checkout step (credit check, standardised disclosure) and stronger statutory protection in dispute. The practical cost of using BNPL responsibly does not change; the structural safeguards do.
Returns and BNPL interaction
Returns under BNPL require coordination between the retailer and the BNPL provider. The buyer notifies both, the retailer authorises the return, and the BNPL provider cancels or adjusts the outstanding instalment schedule accordingly. The 14-day EU right of withdrawal applies normally; the BNPL element does not constrain it. In practice, most established providers handle return-related schedule adjustments automatically once the retailer processes the refund. Disputes over non-receipt or faulty goods are resolved through the same provider channels that handle chargebacks for card payments.
When BNPL is rational
BNPL is a useful budgeting tool for buyers with predictable income and sufficient liquidity to cover the instalment schedule reliably. It functions as a free short-term loan in exchange for the buyer’s data and the modest checkout friction. For a buyer who would otherwise pay in full from a current account, BNPL’s benefit is small but not negative. For a buyer using BNPL to acquire goods they cannot in fact afford within the instalment schedule, the structure becomes a debt trap with costs that exceed conventional credit. The line between these two cases is the relevant evaluation, not the headline “0 percent” framing.
Compare item prices and payment options across European retailers.
References to EU Directive 2023/2225 and national BNPL regulation are current to 2026 implementation timelines. This article is general information about consumer credit, not financial advice.