The popularity of Buy Now Pay Later (BNPL) services, while no longer at its peak, remains strong. Popular BNPL providers continue to offer consumers a convenient way to purchase items without immediate payment, making it easy to split costs into manageable, interest-free installments. However, BNPL use can increase significantly during peak shopping times, such as holiday sales periods or Christmas, when the pressure to spend may be higher. While BNPL may appear to be a straightforward solution during these times, the reality is often more complex, with hidden fees, accumulating debt, and potential impacts on your credit score. This ease of access calls for caution, especially when spending tends to spike, as it’s easy to take on more than expected.
As the year draws to a close, so does the whirlwind of holiday sales. From Black Friday and Cyber Monday to Christmas and Boxing Day, there’s always a deal or two that grabs our attention. According to Roy Morgan data, Australians spent $10.2 billion on gifts in 2023, with each shopper averaging $646. In 2024, that figure is forecasted to rise to $11.8 billion, with each shopper spending an estimated $707. While Buy Now Pay Later (BNPL) services can seem like an easy and convenient way to cover these seasonal expenses, they also increase the risk of overspending and accumulating debt that may take months to pay off. Instead of relying on BNPL, consider a more budget-conscious approach—our article, 7 Tips for a Very Merry Christmas on a Budget, can help you manage holiday costs without the financial strain.
Table of Contents
How to Use BNPL Services Responsibly
If You Are Struggling with BNPL Repayments
What is Buy Now Pay Later
Buy Now Pay Later (BNPL) is a type of financing option that allows consumers to purchase items immediately and pay for them over time, usually in a series of installments. BNPL services have grown rapidly in popularity, with major providers like Afterpay, Zip Pay, and Humm leading the market in Australia. These services appeal to consumers by offering the ability to defer payments without an upfront interest charge.
Typically, BNPL divides the total purchase cost into a set number of equal payments, which are automatically deducted from your bank account or card. Payments are often due every two weeks or monthly, depending on the provider’s terms. The appeal of BNPL lies in the promise of "interest-free" payments, making it an attractive alternative to credit cards. However, while it may appear to be a straightforward way to afford more, BNPL has hidden costs and potential risks if not used wisely.
The Dangers
While Buy Now Pay Later (BNPL) services offer convenience and immediate access to goods, they can come with serious financial risks. If not managed carefully, BNPL can lead to hidden costs and mounting debt. Here’s a look at some of the key dangers:
The Fees Can Add Up
BNPL services often advertise as "interest-free," but there are typically fees involved, especially for late payments. These fees can quickly accumulate, turning a seemingly small purchase into a larger financial problem. Even if you keep up with payments, monthly account fees or processing fees may still apply, increasing the total cost of using BNPL over time.
Adds to The Debt Pile
One of the most significant dangers of BNPL is that it encourages consumers to buy more than they can afford, leading to debt accumulation. If you’re already managing other financial obligations, adding BNPL payments to the mix can increase the risk of defaulting on payments or missing out on necessary expenses, like rent or utilities. BNPL debt can sneakily add up, especially when multiple purchases are financed at the same time.
Difficulty Tracking Your Spending
BNPL purchases can start small but quickly build up, making it challenging to keep track of all your obligations. It’s easy to start with one item and, over time, add more, ultimately committing more than expected each instalment. Here’s an example that shows how quickly BNPL payments can add up, showing fortnightly payments:
| Purchase Date | Purchases | Fortnight 1 | Fortnight 2 | Fortnight 3 | Fortnight 4 | Fortnight 5 |
|---|---|---|---|---|---|---|
| Fortnight 1 | Shoes - $180 | $45 | $45 | $45 | $45 | |
| Fortnight 2 | New Phone - $1,200 | $400 | $400 | $400 | $400 | |
| Fortnight 3 | Kitchen Appliances - $320 | $80 | $80 | $80 | ||
| Fortnight 4 | Clothing - $220 | $55 | $55 | |||
| Repayment Amount | $45 | $445 | $525 | $580 | $535 |
In this scenario, each fortnightly payment continues to grow as new purchases are made. By the fourth fortnight, the total repayment amount has reached $580—significantly higher than the initial payment. This shows how BNPL spending can become a financial burden, especially if multiple purchases are added without budgeting carefully.
Without a plan, it’s easy for BNPL obligations to consume funds meant for essentials like food or rent, leading to stress and financial difficulty.
Your Credit Rating Can be Affected
If you’re wondering whether providers require a credit check for buy now pay later services, the answer varies depending on the BNPL provider. Some BNPL services perform a credit check when you sign up or increase your spending limit, while others do not. Here’s how four popular BNPL providers handle credit checks and their potential impact on your credit score:
| BNPL Provider | Can Impact Credit Score | Credit Check Performed (hard credit inquiry*) | Reports Missed Payments |
|---|---|---|---|
| Afterpay | No | No | No |
| Zip Pay | Yes | Yes | Only if you default |
| Klarna | Yes | Only on financing options | Yes |
| Humm | Yes | Only on purchases over $2,000 | Yes |
- Afterpay: Afterpay does not perform a credit check when you sign up, nor does it report missed payments to credit bureaus. As a result, it is unlikely to directly affect your credit score, although missed payments may incur fees.
- Zip Pay: Zip Pay requires a credit check for account approval, which may impact your credit score. Additionally, if you default on a payment, Zip Pay can report this to credit bureaus, affecting your credit rating.
- Klarna: Klarna only performs a credit check if you apply for one of its financing options. However, missed payments may be reported, which can negatively impact your credit score.
- Humm: Humm conducts a credit check only on larger purchases over $2,000. Missed payments are reported and may affect your credit score.
If you’re concerned about the impact of a credit check for Buy Now Pay Later services, it’s essential to understand that while many providers, such as Afterpay and Humm (for lower amounts), do not perform credit checks, others like Zip Pay and Klarna may, especially for higher amounts or financing options. Any missed payments or defaults reported to credit bureaus can affect your credit score and may make it more difficult to secure other forms of credit in the future.
* A hard credit inquiry can slightly lower your credit score and signal to future lenders that you may be taking on more debt, potentially affecting your creditworthiness.
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The Benefits
While Buy Now Pay Later (BNPL) services come with potential risks, they also offer unique benefits that appeal to many consumers. When used responsibly, BNPL can provide financial flexibility and make managing purchases easier. Below are some of the main benefits:
Quick Access to Cash
BNPL allows consumers to purchase items immediately without paying the full amount upfront. This can be especially helpful for people who may not have the cash on hand but need a specific item or service right away. For example, if a necessary household appliance breaks, BNPL gives you the flexibility to replace it immediately, easing the burden of waiting until your next paycheck.
Flexible Payment Plans
One of the biggest attractions of BNPL is its flexibility. Instead of having to pay off a purchase in one go, you can spread the cost over several weeks or months. BNPL providers typically offer structured payment plans with set installment amounts, making it easier to budget around these smaller, more manageable payments. This flexibility can help consumers make larger purchases more affordably, as long as they stay on top of their instalment schedule.
Flexible Credit Check Requirements
Unlike credit cards and traditional loans, many BNPL providers are less stringent, with most not requiring a credit check except for larger purchases or specific financing options. This flexibility benefits individuals with lower credit scores or those new to credit, offering them access to payment options without necessarily impacting their credit history. However, this ease of access also calls for responsible use, as it means BNPL is available to consumers who might not qualify for other forms of credit.
How to Use BNPL Services Responsibly
While Buy Now Pay Later (BNPL) services offer convenience, using them without caution can lead to financial strain. Here are some tips to help you use BNPL responsibly:
- Set a Budget: Before making any BNPL purchase, assess your budget and ensure you have enough income to cover the upcoming installments. Consider BNPL payments as part of your monthly expenses to avoid overspending.
- Limit the Number of Purchases: Try to restrict yourself to only one or two BNPL purchases at a time, only allowing yourself to use it again once those purchases are fully paid off. Managing multiple BNPL plans can quickly become overwhelming and increase the risk of missed payments.
- Pay On Time: Late fees can add up quickly with BNPL. Set reminders for each installment or automate payments if possible. Paying on time helps you avoid unnecessary fees and keeps you on top of your budget.
- Avoid Impulse Buys: BNPL makes it easy to buy on impulse, but resist the temptation. Before finalising a purchase, give yourself a cooling-off period to consider if it’s something you truly need.
- Keep Track of Your Total Debt: Regularly checking your outstanding BNPL repayments, along with any other recurring debt repayments you may have, helps you stay aware of your overall debt and ensures you don’t overextend yourself financially.
Paying Off BNPL Debts
Paying off BNPL debt may feel challenging, but with a strategic approach, it’s achievable. Start by evaluating all your BNPL accounts and identifying any with high fees or late penalties. Prioritising these balances can help you avoid unnecessary charges and reduce your overall costs more quickly.
Creating a structured repayment plan is essential. Outline each BNPL installment, noting the due dates and any fees, and fit these payments within your monthly budget. This approach ensures you’re clear on what’s owed and when, helping you stay organised and on track.
If possible, consider putting any extra income toward these debts. Even small additional payments can make a difference, reducing your balance faster and minimising long-term costs. However, while repaying your BNPL debt, it’s important to not make any new BNPL purchases to avoid adding to your financial load.
If You Are Struggling with BNPL Repayments
If BNPL repayments have become overwhelming, there are steps you can take to regain control and alleviate immediate financial stress. Explore our Debt Management Solutions, which can incorporate your BNPL debt and reduce it. Our team of Customer Success Specialists are available to provide support and advice tailored to your specific situation—get in touch with us today on 1800 534 534. At Revive Financial we offer professional assistance through various solutions designed to help you take back control of your finances and work toward becoming debt-free.
