Unexpected bills, urgent purchases, or even treating yourself to something special can feel out of reach when payday is a little too far away and your budget is stretched thin. No wonder 40% of the population relies on BNPL to get by.

Buy Now Pay Later (BNPL) is a payment method that lets you buy what you need today and spread the cost over time. It’s fast and flexible, so it’s gaining popularity across Australia, especially for those with tight cash flow.

While BNPL is helpful, it may also involve risks. Below is a breakdown of how BNPL works, its benefits and drawbacks, and a guide to help you decide if it’s a smart choice for your situation.

What is Buy Now, Pay Later?

Buy Now, Pay Later (BNPL) is exactly what it sounds like: a way to purchase and pay for items later in smaller, manageable instalments. Instead of paying the full amount upfront, you split the cost into equal payments spread over weeks or months.

Here’s how it works:

• You select BNPL as your payment method at checkout, whether you’re shopping online or in-store.
• You pay the first instalment right away.
• The remaining instalments are scheduled every two weeks or monthly.

Popular BNPL services in Australia include Afterpay, Zip Pay, Klarna and Humm. 

 

How BNPL Compares to Other Borrowing Options

BNPL vs Credit Cards

Traditional credit cards remain a mainstream financing option with distinct advantages such as extended interest-free periods, reward programs, purchase protection, flexible credit limits, and worldwide acceptance.

The potential challenges, though, include interest rates that can be as high as 25% per annum, annual fees, strict credit assessment requirements, and minimum income thresholds.

BNPL vs Payday Loans

A payday loan is a small, short-term loan typically designed to cover expenses until your next payday. Unlike BNPL, which is usually used to purchase goods and services, a payday loan provides quick cash for any need.

Payday loans often come with exorbitant fees and interest rates, making them one of the most expensive borrowing options. The high cost can also easily trap you in a cycle of rolling over debt.

BNPL vs Personal Loans

A personal loan can provide a lump sum with longer repayment terms for big-ticket expenses like home renovations or medical bills. If you have good credit, personal loans often come with lower interest rates than BNPL plans. Also, unlike BNPL, personal loans don’t limit you to specific retailers. You can use your borrowed money as you wish.

However, the downside of personal loans is that it takes some time to get the loaned amount because lenders require credit checks and detailed applications.

 

Pros and Cons of BNPL

Benefits

Instant Access to Goods

BNPL allows you to buy what you need immediately without waiting until payday, making it perfect for when you need something essential but your bank account is running low. Whether you need to replace a broken appliance or grab those work shoes on sale, you can get what you need when you need it.

Interest-Free Periods

Unlike credit cards, BNPL services typically charge zero interest when you stick to your payment schedule. For most providers, you’ll have four to eight weeks to pay off your purchase without paying a cent in interest.

Easy To Get Started

Unlike traditional credit cards or personal loans that can take days or weeks for approval, BNPL services typically get you up and running in minutes. Most providers don’t even run a credit check, making it accessible if you struggle to get conventional credit.

Risks

Late fees and penalties

While BNPL might be interest-free, late fees can quickly eat into any savings. Miss a payment, and you’re looking at charges between $5-15 each time. These fees can stack up faster than you’d think, especially if juggling multiple BNPL accounts. Before you know it, that ‘bargain’ purchase could cost more than using a credit card.

Risk of overspending

It’s easy to fall into the “I’ll pay it later” mindset when using BNPL. The simplified application process and attractive payment splits can tempt you into buying more than you can afford. Many Australians find themselves caught in a cycle of payments, taking on new purchases before paying off existing ones. This can create a dangerous debt spiral that’s hard to escape.

Impact on credit scores for missed payments

While BNPL providers might not check your credit score when you sign up, they can certainly affect it if things go wrong. Missing payments may be reported to credit agencies, and having multiple BNPL accounts could raise red flags with future lenders. 

 

Understanding BNPL Terms and Conditions

Buy Now, Pay Later services may seem straightforward, but the fine print can make a big difference in how much you pay. To avoid surprises, here are key terms to watch out for:

Fees

Interest-free doesn’t mean cost-free. Each BNPL provider has their own fee structure. Afterpay might charge up to $68 in late fees for larger purchases, while Zip Pay includes a monthly account fee if you carry a balance. 

Account-keeping fees can sneak up on you. While most providers don’t charge them, some do if you carry a balance beyond a specific period. 

Then there are payment processing fees, though small (usually 1-2%), which can add up across multiple purchases.

Understanding these differences could keep more money in your pocket.

Penalties

Late payments can have a domino effect, leading to penalties, additional fees, and even a potential impact on your credit score. Be sure you’re clear on what happens if you can’t make a payment.

Repayment schedules

BNPL services typically set fixed repayment schedules, such as fortnightly or monthly instalments. This is easy to remember when you have one account to manage. Otherwise, you risk missing a payment, which can lead to extra fees or even default.

Interest

Many BNPL providers offer interest-free periods, but not all purchases are exempt. Some plans, especially those for higher-value items, may come with interest charges that kick in after a promotional period ends.

So before jumping into any BNPL agreement, ask yourself:

• When exactly are my payments due?
• What happens if I miss a payment?
• Are there any hidden fees?
• Can I afford these repayments along with my other commitments?

Always take five minutes to understand what you’re signing up for. Those few minutes could save you hundreds in unexpected fees and stress down the track.

 

Tips for Responsible BNPL Use

Only Borrow What You Can Afford to Repay

It’s easy to be tempted by BNPL’s low upfront costs, but remember, the payments will come due. Before committing to a purchase, ensure you can comfortably fit the repayments into your budget without stretching yourself too thin. Ask yourself, “If I had to pay this off today, could I afford it?”

Track Your Spending

It’s easy to lose track of how much you owe if you have multiple BNPL purchases. So, keep a record of your upcoming payments to ensure you don’t overcommit. Consider using a budgeting app or a simple spreadsheet to track repayment schedules and other expenses.

Set Reminders for Payment Due Dates

As we mentioned earlier, missing a BNPL payment can lead to costly late fees, so stay on top of due dates. Set calendar reminders or automate your payments where possible to avoid forgetting. If your repayment schedule doesn’t align with your payday, plan to ensure your funds are available when needed.

Choose Reputable Providers

Stick to well-known providers with clear terms and conditions. Avoid any service that seems vague about fees or repayment rules. Also, read reviews and ensure the provider is trustworthy before signing up.

Watch Out for Red Flags

Some BNPL providers may downplay fees or penalties in their advertising, making it harder to understand the actual cost of using their service. Beware of:

• Vague or hidden terms about late fees or interest charges.
• Overly aggressive marketing that encourages you to spend beyond your means.
• Promises that seem “too good to be true,” like unlimited credit or no consequences for missed payments.

Avoid Falling into the BNPL Trap

Using different BNPL providers for various purchases can be tempting, but juggling multiple accounts can quickly become overwhelming. This increases the risk of:

• Missing payments and incurring late fees.
• Losing track of how much you owe across all platforms.
• Creating a debt cycle that’s hard to break.

If you’re considering a BNPL purchase, ask yourself if adding another repayment plan is manageable—or if it’s better to wait until you’ve cleared your current obligations.

Don’t Use BNPL for Non-essential Purchases

BNPL makes it easy to justify impulse buys or splurges, but using it for non-essential items can lead to unnecessary debt. Think twice before using BNPL for luxury or discretionary items you don’t need immediately and purchases you wouldn’t consider if you had to pay the full amount upfront.

A good rule of thumb is to reserve BNPL for necessary expenses, such as managing an emergency purchase.

 

Alternatives to BNPL

While Buy Now, Pay Later can be a convenient option, it’s not the only way to manage your finances. In fact, avoiding borrowing altogether may be a better strategy for long-term financial health. Here are some practical alternatives to help you stay on track without relying on BNPL:

Budget, Budget, Budget and Stick to It

Creating and sticking to a budget is one of the best ways to avoid needing BNPL or other forms of credit. A well-planned budget can help you manage cash flow more effectively and reduce the temptation to borrow. Read our budgeting tips for guidance.

Save For Planned Purchases

If you know you’ll need to make a big purchase, save up in advance. Start with opening a separate account and contributing a small amount regularly. Even $20 a week adds up over time. If your budget permits, set up an automatic transfer to your savings account to make saving easier. If you need a little more guidance, read our easy saving tips.

Explore Community or Government Resources

If you’re struggling with cash flow, consider seeking support through local or government programs instead of turning to BNPL. Many charities and nonprofits offer help with essential expenses like groceries, utility bills, or school supplies. There are also programs like NILS (No-Interest Loan Schemes) that provide small loans for essential items without interest or fees. Lastly, check your eligibility for financial aid, grants, or subsidies for housing, childcare, or other needs.

 

Debt Help with Debt Negotiators

If debt is straining your budget, talk to us or try our free debt assessment to start. At Debt Negotiators, we know everyone’s money story differs, so we don’t do one-size-fits-all solutions. Instead, we’ll sit down with you, understand your financial situation, and help map out a plan that works for you. Let’s work together to get you back on track.