Is Buy Now Pay Later putting you at risk?

By Sara Borman · · 3 min read
Fact Checked
Advertiser disclosure

Australians have been enthusiastic users of Buy Now Pay Later services, with RFIGlobal research showing that some 40% of Aussies regularly use BNPL as a payment method. Now the BNPL is to be regulated under the National Credit Act, it’s worth considering whether the rewards of Buy Now Pay Later outweigh the risks. 

The Good: Rewards of Buy Now Pay Later

A 2023 study conducted by Australian non-bank lender Wisr shows that many Australians are still smitten with BNPL, with 72% of survey participants reflecting on their experiences with Buy Now Pay Later services as positive ones.  

For many, Buy Now Pay Later allows them to manage irregular paychecks and plan out larger purchases. When citing reasons for initially turning to BNPL, 67% said they were drawn in by the interest-free nature of payments. Convenience was another big driver of the platform, with 49% of respondents saying that was what attracted them to it.

And BNPL can be rewarding! Zip Pay, for instance, allows you to earn cashback on your purchases with certain vendors (and if you pay off your balance every month, you avoid membership fees as well). Afterpay also grants access to exclusive discounts and rewards for diligent users who are proactive with their payments. 

With Buy Now Pay Later debt counting towards your credit record, making regular BNPL payments can be a good way to start building or repairing your credit score.

The Bad: Risks of Buy Now Pay Later

While many people are benefiting from their Buy Now Pay Later use, many are finding themselves in over their heads with debt.

Of those surveyed by Wisr, 14% expressed regret and negativity around Buy Now Pay Later as an experience, with a further 22% agreeing about a need for further regulation in the sector. Nearly 10% said they regretted ever using BNPL, finding themselves stuck in a cycle of debt, while 5% said they struggled to stay on top of their repayments.

A study from open banking app Frollo shows that a quarter of Buy Now Pay Later users make their repayments with credit cards, potentially further feeding into a cycle of debt or accruing interest on what were originally interest-free instalments. 

It is easy to spend your means on BNPL with the attraction of low fees and no interest, but spending outside of your capacity remains a problem no matter how you finance it. Not only can you do damage to your credit score by missing payments and net some serious late fees, but paying off your BNPL with a credit card or personal loan can feed the problem (and impact your credit score) further.

Avoiding the Ugly: Finding alternatives to Buy Now Pay Later

If you are an impulse spender and find yourself getting in over your head easily with Buy Now Pay Later services, there are options. 

Look to BNPL services with low credit limits to prevent yourself from getting outside of your depth. 

Avoid linking BNPL to a credit card in order to keep free from ever paying debt with more debt.

If you need an incentive to keep your balance paid, or are looking to build back your credit score, you may want to consider a low rate credit card. You’ll avoid interest charges if you keep your balance paid in full, and making regularly scheduled payments can go a long way to repairing your credit. 

Some credit cards even have payment plan options which echo the BNPL structure, allowing you to select a number of purchases to pay back in instalments over time.

Buy Now Pay Later might be an option that works for you, but it’s important to be aware of the potential it has to get overwhelming – and fast.

Compare some of Mozo’s Best Buy Now Pay Later and Best Credit Card providers to find some of our top picks. In the meantime, start comparing low rate credit cards below.

Compare low rate credit cards

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Last updated 23 November 2024 Important disclosures
  • Citi Rewards - Balance Transfer and Purchases offer

    Enjoy 0% p.a. for 15 months on purchases and balance transfers. Balance transfer reverts to cash advance rate. Earn up to 1 Citi reward Point per $1 on eligible transactions. Access up to 3 months complimentary International Travel Insurance and up to 14 days Domestic Travel Insurance with a Citi Rewards Credit Card when meeting eligibility criteria. Apply for a credit limit from $2,000 up to $100,000. Balance transfer fee applies. This product is provided by National Australia Bank Limited, using certain trademarks temporarily under licence from Citigroup Inc.

    Purchase rate
    0% p.a. for 15 months then 21.49% p.a.
    Balance transfer rate
    0% p.a. for 15 months and then 22.24% p.a. (2.00% balance transfer fee)
    Annual fee
    $199
    Compare
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    Details
  • NAB Low Rate Card - Balance Transfer Offer

    Spend with confidence with a low variable purchase rate and 0% p.a. interest on balance transfers for the first 24 months. Unpaid balance transfer reverts to variable cash advance rate. 3% balance transfer fee applies. There’s also up to 55 interest free days on purchases to help you manage your budget when you pay your account in full by the due date. Minimum credit limit $1,000. Low annual fee. T&Cs, fees, charges and eligibility criteria apply.

    Purchase rate
    13.49% p.a.
    Balance transfer rate
    0% p.a. for 24 months and then 21.74% p.a. (3.00% balance transfer fee)
    Annual fee
    $59
    Compare
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    Details
  • Citi Clear - Balance Transfer Offer

    0% p.a. for 24 Months on balance transfers. 1.5% balance transfer fee applies. Rate reverts to cash advance rate. $49 annual fee in the first year, reverts to $99 thereafter. Access complimentary insurance for eligible products purchased with your Citi Clear Credit Card, including Extended Warranty Insurance and Purchase Protection Insurance. Enjoy a low ongoing variable purchase rate of 14.99% p.a. This product is provided by National Australia Bank Limited, using certain trademarks temporarily under licence from Citigroup Inc.

    Purchase rate
    14.99% p.a.
    Balance transfer rate
    0% p.a. for 28 months and then 22.24% p.a. (3.00% balance transfer fee)
    Annual fee
    $99
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    Details
  • Kogan Money Black Card

    Get 0% p.a. on purchases and balance transfers for 9 months with a 1% balance transfer fee. Reverts to cash advance rate. $0 annual fee to pay. Earn 2 rewards points per dollar on your eligible purchases at Kogan.com & 1 rewards point per dollar on your everyday purchases, almost anywhere (T&Cs apply). FREE Kogan First membership valued at $129/year. Add up to 4 additional cardholders at no cost.

    Purchase rate
    0% p.a. for 9 months then 21.99% p.a.
    Balance transfer rate
    0% p.a. for 9 months and then 22.74% p.a. (1.00% balance transfer fee)
    Annual fee
    $0
    Compare
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    Details
  • HSBC Low Rate Credit Card

    Purchase rate
    12.99% p.a.
    Balance transfer rate
    0% p.a. for 12 months and then 25.99% p.a. (2.00% balance transfer fee)
    Annual fee
    $99
    Compare
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    Details

^See information about the Mozo Experts Choice Credit Card Awards

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