Risks of using Buy Now Pay Later

Buy Now Pay Later can seem like an easy way to pay for things but there are risks.

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There are risks in using Buy Now Pay Later (BNPL) so it is worth understanding them before you sign up.  BNPL can make it more difficult to track spending and it is easy to get in over your head, there can be high fees and charges and a default may affect your credit report.

BNPL can seem helpful at first, but it can be easy to get into trouble if you make too many purchases and cannot make payments on time.

It’s important to know that BNPL doesn’t have the same legal protections as other credit products. There is no legal obligation for BNPL lenders to check if you can safely repay your debt or to consider any financial hardship. This could leave you struggling if you have trouble making your repayments.

This page explains the risks of using BNPL, such as lack of protections, difficulty tracking spending, financial hardship, fees and charges and the impact on your credit report.

At the bottom of this page, we explain some less risky alternatives to BNPL and where to find out more about these.

If you read the information below and you are still not sure what to do or you are feeling overwhelmed, call us on 1800 007 007 to speak with one of our financial counsellors.

Risks of using Buy Now Pay Later


The credit laws do not apply

Buy Now Pay Later lenders are not covered by the National Consumer Credit Code. This means they don’t have the same legal obligations as banks and other lenders to:

  • check that you can afford the repayments;
  • offer financial hardship assistance when things go wrong; or
  • be a member of the Australian Financial Complaints Authority (AFCA), which is a free and independent dispute resolution scheme.

However, some BNPL lenders are members of AFCA and may also be subscribers to the voluntary BNPL industry Code of Practice.  This provides some protection and means they must do certain things like:

  • Make sure the BNPL product is suitable for you (although the tests for checking if the BNPL is affordable is not equivalent to those under the National Credit Code that apply to banks and other lenders).
  • Have a complaints process that is visible and easily accessible from their website.
  • Offer financial hardship assistance if you are experiencing financial difficulty.
  • Comply with the ACCC’s and ASIC’s Debt Collection Guidelines.
  • Respond to your request for financial hardship assistance within 21 days.
  • Stop any debt collection activity while they are considering your request for financial hardship assistance.
  • If they reject your hardship request, they must give reasons. You then have the right to dispute this decision in AFCA.

If your BNPL lender has not signed up to the voluntary BNPL industry Code of Practice and is not a member of AFCA, these requirements will not apply, and you will have even fewer rights and protections.

Check if your Buy Now Pay Later lender is a member of AFCA here.


Difficulty tracking your spending

BNPL purchases tend to sneak up on you.  It is easy to go from paying $25 each fortnight over 8 weeks for a nice jumper to wear on a Saturday night, to buying a few more items over the next few weeks and finding you have committed the equivalent of your food or rent budget to BNPL payments.

Consider this example:

Purchases P 1 P 2 P 3 P 4 P 5
Clothing $150 $37.50 $37.50 $37.50 $37.50
Shoes $120 $30.00 $30.00 $30.00 $30.00
Bed Sheets, Blanket & Towels $250 $62.50 $62.50 $62.50
Car Service $450 $112.50 $112.50
Clothing $100 $25.00 $25.00
Computer $650 $162.50
Fortnightly repayments due $37.50 $67.50 $130.00 $267.50 $392.50

Without a budget or a money plan, it is easy to fall into a debt trap if you don’t have enough money to pay the next BNPL instalment.


Unaffordable debt

Consider what other debts and bills you already have and if you can afford the repayments on these as well as the Buy Now Pay Later (BNPL) payments.

BNPL make it easy to spend more money than you can really afford. The purchase cost can seem cheaper when you split it up into smaller repayments, but many people lose track of how much is due and when (particularly if you’ve made multiple purchases on different days and are using more than one BNPL account). You could quickly get caught spending far more than you intended or more than you can afford to repay.

See our page on Steps to take if you are struggling to repay BNPL debt.


The fees can add up quickly

If you pay late or miss repayments:

  1. You will usually incur late payment fees and sometimes other fees, such as collection fees. If the BNPL has not signed up to the voluntary industry code, these fees can be unlimited (not capped) so they will keep adding up.
  2. The fees charged can vary from one BNPL lender to another. For example, one Buy Now Pay Later lender will charge you a late payment fee of $8 each time you do not make a payment by the due date.
  3. Some BNPL lenders will charge you a bill transaction fee of $2.00 each time you make a payment using BPAY instead of a linked card.
  4. You may also incur other costs like a dishonour fee from your bank if there was not enough money to make the payment.
  5. If you use your credit card to make the repayments and don’t repay your credit card then you may end up paying interest as well.
  6. Late, missed or overdue payments may also be listed on your credit file as a default, which can make it difficult to get approved for other loans in future.


Your credit rating can be affected

Your credit report contains information about your credit history.  Credit providers, such as banks, use this information, and their own data, to help decide whether to give you credit when you apply for a loan, such as for a car loan or home loan.

As a general rule, your credit rating, or score, will be lower if you have made many credit applications, there is poor repayment history (regular missed or late payments on loans) and defaults listed in your credit report.

Having multiple Buy Now Pay Later (BNPL) applications and accounts on your credit report can negatively affect your credit report and therefore your credit rating because:

  • Some BNPL lenders will check your credit report when you sign up for an account and may also check it every time you increase the amount you can spend with them.
  • These checks, or applications, are recorded as a credit inquiry on your credit report by the BNPL lender.
  • If your BNPL lender has an Australian Credit Licence, they may also report your Repayment History Information, showing whether repayments have been made on time, on your credit report.
  • You might end up with a default listed on your credit report if you are more than 60 days behind on your repayments and owe your BNPL lender $150 or more.

See our page on Bad Credit Rating for more information about your credit report.

Alternatives to Buy Now Pay Later

Speak to a financial counsellor

If you are struggling to make ends meet or relying on BNPL to pay for essentials, you can speak to a financial counsellor.  Financial counsellors aren’t judgmental about your circumstances – they’re here to offer you free, confidential and independent advice and assistance.

A financial counsellor can help you understand safer alternatives to BNPL, prepare a budget or money plan to help get your finances under control, provide practical advice and assistance if you have debts and are struggling to pay your living expenses.

To speak to a financial counsellor you can:

  • Call the National Debt Helpline on 1800 007 007 – open Weekdays from 9:30 am to 4:30 pm.
  • Use our live chat service by clicking the chat icon in the bottom right corner of your screen. Live chat is available 9:00 am to 8:00 pm weekdays. If you send a message outside these hours a financial counsellor will get back to you.
  • Make an appointment to see a financial counsellor in your local area – Find a local Financial Counsellor .

Save up before making new purchases

Consider creating a “save now, buy later” account along with an emergency fund to allow for any unexpected expenses you may have in the future.

If you are considering making a purchase through Buy Now Pay Later, take some time to consider if you really need the item. If you decide that you’d still like to buy it, save up over time to buy the item rather than spending money that you don’t have.

Moneysmart has useful information on how to save money effectively.

Need to buy essential household goods?

No interest loans (usually $800 to $1,500) are available for people on low incomes to buy essential household goods, such as TVs, computers, couches, washing machines and fridges.

Read more about the No Interest Loan Scheme (NILS)

Need help urgently with everyday living expenses?

If you’re in crisis or need help urgently with living expenses, there are emergency relief programs that can help you with things like food, transport, accommodation, utility bills and clothing.

More about emergency assistance