Buy now, pay later: The hidden loan many don't recognise

You're scrolling through an online shop at eleven at night, three weeks before payday. A dress catches your eye. It costs more than you have in your account right now, but there's a button that says you can split it into three payments. You click it. The dress arrives tomorrow. You don't think of yourself as having taken out a loan, but you have.

This is the reality for thousands of people in Ireland. Buy now, pay later services—Klarna, Humm, Revolut's pay later option, and others—have become so woven into the fabric of online shopping that many users don't recognize them for what they are: borrowed money. The services started as a way to spread the cost of big purchases like sofas and washing machines, the kind of thing families saved toward. Now they're being used for takeaways, teeth whitening, fast fashion, cosmetic procedures. Anything you want but can't afford right now can be yours immediately, with the bill arriving later.

The numbers tell the story. One in four Irish shoppers say they would consider using buy now, pay later to purchase things that would otherwise be outside their budget. Yet more than one in five people using these services don't fully understand how they work. More than one in three see them as a payment method—like Visa or Mastercard—rather than as a form of borrowing. The Central Bank research shows the typical user is between 25 and 44, more likely to be female, often working in professional or managerial roles. When you're shopping online and the buy now, pay later option appears right next to the standard payment methods at checkout, it's presented as just another way to pay. The critical difference—that you're borrowing money—gets lost in the presentation.

The mechanics are deceptively simple. Buy a €240 North Face jacket from Asos using Klarna's pay-in-three option and you pay €80 now, then €80 more in 30 days, then €80 in 60 days. If you have the money when each payment is due, there's no interest, no fees. But the approval process is nothing like a bank loan. There's no lengthy application, no probing questions about your finances. It takes minutes. A phone number and an email address are often enough. For amounts under €500, the checks are minimal. The consequence of this ease is that people can find themselves in debt without having gone through any real assessment of whether they can actually afford it.

When payments are missed, the fees accumulate quickly. Miss a €240 jacket payment and you get a courtesy period of two to seven days to sort it out. If you can't, a late fee of €8 kicks in. You can extend the due date for between €2 and €4. If the full amount remains unpaid after 60 days, debt collection procedures begin, and you'll be liable for all the costs the provider and their collection agency incur. For a €2,700 cosmetic treatment bought through Humm, the picture is more complex: a €40 application fee, 12 monthly payments of €231, plus €3.50 monthly account-keeping fees. Miss a payment by more than 24 hours and there's a €9 dishonour fee. The total cost balloons to around €155 more than the original price. And Humm's terms vary by retailer—interest can range from zero to 14.99 percent, application fees from €10 to €50, account-keeping fees from €1 to €20.

What makes this particularly dangerous is the invisibility of accumulated debt. If you use one buy now, pay later service, you see three deductions from your account instead of one. Use two services and you're managing six separate payment dates. Use three and the complexity becomes genuinely difficult to track. A takeaway you ate in October might be due at Christmas. A swimsuit bought in August comes due in October. If an unexpected expense arrives—a medical bill, a car repair—and you can't make a payment, you default. That pushes a larger bill into the future, making another default more likely. The Central Bank found that people using buy now, pay later are more likely to have other borrowings and report higher rates of borrowing overall. They're also more likely to make impulse purchases. Almost one in four users said they were more likely to buy things they didn't need. More than 43 percent said they often spend significantly more than they planned.

Michelle O'Hara from the Money Advice and Budgeting Service points out the fundamental problem: if you don't have money in your account before payday, will things really be different 30 or 60 days later when it's still the week before payday? The services make money through fees—late fees, extension fees, application fees, account-keeping fees—and through the data they collect about you. Retailers partner with them because they drive sales. People who can't afford something today can buy it anyway, which means retailers sell more. The providers profit from the fees and from the data. The consumer gets the product and the debt. What many don't realize is that defaulting on amounts over €500 will damage their credit record, making it harder to get a loan or a mortgage in the future. Under €500, the consequences for your credit aren't the same—yet. But European legislation is likely to change that. The system is designed to be easy to enter and hard to escape.