What does ‘Buy Now, Pay Later’ really cost?

In recent years, the way we shop has changed forever with ‘Buy Now, Pay Later’. These services allow you to buy something on the spot and pay it off interest free, usually in regular smaller installments. Common ‘Buy Now, Pay Later’ companies include:

– Afterpay
– ZipPay (who also offer ZipMoney)
– Splitit
– Klarna

Most Buy Now, Pay Later (BNPL) companies offer interest free repayments and charge the merchant (store or company) to offer their service. Note that some services offer larger amounts that are not interest free and act as a credit service, such as ZipMoney. BNPL lenders are also different to pay day loans, which are normally charged with extremely high fees – for more information click here.

How does it work?

A number of retailers and services are partnered with a particular BNPL provider. Instead of paying by cash or card, the BNPL company ‘pays’ the retailer or service, and you pay the BNPLprovider in equal installments (usually fortnightly or monthly). You also have the option of paying off the full balance at any time.

What fees apply?

Most BNPL companies charge the merchant (retailer or service) for allowing customers to use their service. You are not usually charged a setup fee or charged interest on your repayments. However, if you miss a payment or pay late, late fees will normally apply. Some providers also charge account keeping fees, early exit fees or other fees, so it’s important to investigate the full charges that may apply when you are signing up.

Why do people like it?

Using BNPL can make you feel like repayments are more affordable when split over four fortnights. Some providers will even let you pay as little as $40 a month on balances of up to $1000. For some people, this can mean that it is easier to budget rather than having to come up with a lump sum up front. Many people prefer this method to having a credit card as there is no interest on repayments.

What should you be aware of?

You can overspend.

It’s much easier to spend more than you should when you can pay it over months instead of immediately. It also seems much cheaper when you split the amount into installments. However, because you are not spending your own money straight away, it’s easy for the payments to become a ‘future me’ problem and you can quickly get caught up in a spending spree that’s much higher than you were intending.

It can take a long time to pay off

Even though you’re not paying interest, if you’re spending money you didn’t really have in the first place, it can take a very long time to pay off. Even paying $40 a month – $1000 at that rate will take over two years to pay – and that’s if you don’t keep using it up as you pay it down.

How it affects your credit report

This is a tricky area – some BNPL providers will do a credit check every time you apply for credit. Under their terms and conditions that they can complete a credit check at any time. When this happens, it’s recorded as a new line of credit request on your credit report. Having multiple BNPL application checks on your credit report can affect your application if you apply for a car loan or home loan in the future. Lenders such as banks will often consider that using BNPL may mean that you couldn’t pay for your purchase in full and perhaps this will reflect in your ability to pay your other debts.
Late or missed payments can also be listed on your credit file as a default, as well as if your outstanding debt is sold to a debt collection agency.
To see what policy a BNPL lender uses, or for more information, refer to their website (generally under Terms and Conditions):

More information on different agency credit checks can be found in this Canstar Article

They don’t operate under the credit code

This is currently under review, but at present BNPL companies are not regulated under the National Credit Code. Unlike normal bank loans and credit cards, BNPL lenders not covered by the code are not required to undertake normal responsible lending obligations – that means they are not bound to check if you can afford repayments.

It also means that applying for hardship can be more difficult as they do not fall under the National Credit Code hardship provisions. However, all BNPL providers are members of the Australian Financial Complaints Authority (AFCA), which is an ASIC-approved EDR scheme. This can be used to escalate a complaint if required. Due to current media and industry scrutiny, most providers have their own hardship provisions available.
Are there other options?

There are other options available if you genuinely need money for something you can’t afford.

No Interest Loans

The No Interest Loan Scheme (NILS) is a loan service with no interest for up to $1500. It can be used for appliances, medical and dental services, car repairs/registration and computers or textbooks. Repayments are decided with you and work over a 12 to 18 month period. To find your closest NILS provider you can search here. You need to be a low-income earner and have capacity to pay, but the provider will work with you to determine if this suits your needs.

StepUP Loan

In partnership with the National Australian Bank, StepUP Loans currently offers low income earners loans up to $800-$3000 at a very low rate with no fees. It can be used for a secondhand car, whitegoods, furniture or vocational education and can be paid back over three years if required.

Save up

If you are looking to purchase something that is not covered by the above loans, or do not qualify because of your income then take some time to really think about if you need the item, noting that over half of BNPL purchases occur at a fashion store. If it’s not urgent, or if it is a need and not a want, consider implementing some budgeting strategies to work towards the amount required. Moneysmart and MoneyMinded both have some fantastic information on how to save effectively.


Lay-by is a somewhat ‘old school’ method of putting down a deposit and gradually paying offthe outstanding amount before taking the item home. A number of large retailers still offer this as an installment based payment option. Not to be confused with ‘LayBuy’ which is another BNPL company.
Using BNPL services will always be a personal choice, but it’s important to take the time to work out how much you’re using it, if you are spending for need or want, and how it may affect your credit rating down the track.

Victoria Shakeshaft

Financial Counsellor



Financial counsellors are not financial advisers. You should consider seeking independent legal, financial, taxation or other advice to check how the information in this article relates to your unique circumstances.