Buy now pay later services

Rising from obscurity to ubiquity, buy now pay later has stormed onto Australia's retail scene. So which should you use?

By   |   Verified by David Boyd   |   Updated 2nd December 2020

Comparing buy now pay later services

Afterpay

Afterpay

Maximum loan amount

$1,500.00

Repayment

Four equal instalments paid fortnightly

Late fee

$10.00

Highlights

  • Pay the purchase price in four equal fortnightly instalments. Available at thousands of online and offline stores.
Zip

Zip

Maximum loan amount

$1,500.00

Repayment

Weekly, fortnightly, or monthly instalments

Late fee

$5.00

Highlights

  • Choice of weekly, fortnightly, or monthly repayment plans. Widely accepted in stores and online.
Humm

Humm

Maximum loan amount

$30,000.00

Repayment

5 fortnightly payments or 10 weekly payments

Late fee

$6.00

Highlights

  • A good option for more expensive purchases with credit of up to $30,000. Choice of either fortnightly or weekly payments.
LatitudePay

LatitudePay

Maximum loan amount

$1,000.00

Repayment

10 weekly repayments

Late fee

$10.00

Highlights

  • Weekly repayments over 10 weeks with no interest. Widely available, including at Harvey Norman and The Good Guys.
Brighte

Brighte

Maximum loan amount

$30,000.00

Repayment

Variable

Late fee

$4.99

Highlights

  • Specialising in interest free plans from $1,000 to $30,000 for home improvements and solar installation.
Openpay

Openpay

Maximum loan amount

N/A

Repayment

Weekly or fortnightly

Late fee

N/A

Highlights

  • Shop in-store or online and choose between weekly or fortnightly instalments with no interest.

Overview

Buy Now Pay Later (BNPL) is an increasingly popular retail payment option, becoming ubiquitous among shoppers of all ages. Here’s how it works.

There are various BNPL options in-store and online. Through these payment platforms you can take home your item immediately and repay the purchase amount in instalments over several weeks, without paying any interest charges (although there are other fees involved). Many of these payment platforms are available at over 20,000 bricks-and-mortar or online stores across Australia (even more internationally, with some BNPL providers), and are accessible on Android and iOS platforms.

How it works

BNPL services offer an intermediary finance service between retailers and their customers. Customers can link their debit or credit card to their BNPL account, usually with immediate approval in-store or online. Some payment services will make a 'soft' credit enquiry – a request for your credit history that will not affect your credit score – before opening your account. Once your account is approved, payment instalments are automatically charged to your debit or credit card.

No interest, but fees apply

The BNPL platforms don't charge shoppers any interest, although they do levy a fee from merchants who offer it as a service. An entirely interest-free finance option, the only costs involved are the cost of the item itself and late fees on any missed instalments if there are insufficient funds in your linked bank account (via your debit card) or not enough credit left on a maxed-out credit card. However, if you are using a credit card with the platform, you will incur interest charged by your credit provider if you don't repay the full credit card account balance on the due date.

Depending on which BNPL service you are using, there may be other fees charged, such as:

  • Credit establishment fee
  • Monthly account-keeping fees
  • Payment processing fees
  • Early exit fee

Even though no interest is charged, it can be quite easy to rack up considerable fees when using BNPL services, so carefully check the terms, conditions and fee schedule of each payment service before deciding which one to use.

Setting up and using your account

Suppose you find yourself short of cash while shopping. You could choose to put all or part of the purchase price of an item on a BNPL account. You'll need to be at least 18 years old to open an account. Once you've chosen your provider you may need to download their app (unless you're shopping online) and link a valid debit or credit card issued in your name. The service will break up the payment into equal instalments payable over a number of weeks. For future in-store shopping you may need to use a personal barcode in your phone or simply sign in to your account when you're at the cash register.

Increasing your spending limit

The payment service you've chosen won't necessarily approve every purchase you want to make. But the more you use the service and keep up with payments, the greater your approved purchasing capacity will become.

Buy Now Pay Later platforms available in Australia

It's a competitive market with plenty of players. Afterpay and Zip Pay are the market leaders and have the largest number of Australian participating retailers, but there are other options:

  • Afterpay. Pay the purchase price in four equal fortnightly instalments. If your purchase is over $500, you'll need to pay the first instalment immediately. There's a $10 fee if any instalment is late and a further $7 fee if you still haven't paid a week later.
  • Zip Pay. Open an account with a minimum credit limit of $350, maximum $1,000. Repayment plans are flexible – whether you pay off instalments weekly, fortnightly, or monthly is up to you. You get up to 60 days fee-free, but a $6 charge applies should you have an outstanding balance on the first of every month in the month following your purchase. A late payment fee of $5 is levied for payments 21 days past due. Minimum repayment $40 monthly.
  • Humm. Minimum loan $1, maximum $30,000. Users get instant access to purchases by agreeing to five fortnightly payments or ten weekly payments. With the app, Humm users can get their hands on products and services worth up to $10,000 each, with up to 24 months to foot the bill. There are no fees for small purchases repaid over 2.5 months, but there's a $6 late payment fee, and establishment fees and monthly fees may apply for larger purchases and longer repayment periods.
  • Klarna. Online shoppers settle purchases (available from 200,000 online retailers worldwide) in four interest-free instalments every two weeks. A $3 late fee applies for purchases under $100, or $7 for purchases over $100.
  • Openpay. Use in-store or online and pay in up to two months with no processing fees, but fees apply to longer repayment terms and higher amounts, as well as to late payments. Works with traditional and online retailers as well as some medical services, vets, car repairers and other suppliers.
  • LatitudePay. Shop at stores like Harvey Norman and The Good Guys and repay in 10 weekly instalments with no interest. Late payment fees apply.
  • Brighte. BNPL for home improvements and solar energy and battery installations.

BNPL vs credit cards

Millennials in particular are switching to BNPL services in preference to credit cards, perhaps because it's digitised and app-driven, whereas credit card payment can be a bit clunky by comparison. And the main perceived advantage of BNPL is that it's interest-free, whereas credit cards charge interest if you don't repay your full balance once the 44 or 55 interest-free days have expired. But, depending on the service you choose, the size of your purchase and the time taken to repay, it's possible to end up paying more in BNPL establishment fees, monthly fees and late payment fees than you would pay in interest on a traditional credit card. Plus, you typically don't have the option of earning rewards points with BNPL. Read more in our informative article Afterpay vs credit cards.

BNPL vs debit cards

The main advantage of using a debit card is that you're paying for purchases directly with your own money, and avoiding the temptation of getting into debt. But once you link your debit card to a BNPL service, you've created a means of impulse buying with your debit card. So if you want to access buying on credit you should consider whether a credit card might be a better option than BNPL. Provided you always repay your credit card balance in full and on time, you could benefit by earning rewards points and accessing complimentary benefits not available with BNPL or a debit card.

Learn about buy now pay later services

What is buy now pay later and how does it work? Find out here.

  • Pros & cons

  • Tips

  • FAQs

  • Guides

Impulse spending

BNPL offers another opportunity for impulse-spending. Seriously consider whether you'll still be excited about your purchase in a few weeks time, after you've satisfied all your payments. If the answer is 'No', the purchase may not justify blowing your budget.

Interest-free terms

A central selling point for BNPL is the absence of interest charges. Instead, should you miss a payment, you'll incur a late fee of a fixed amount.

Late payment penalty

A late fee of $10, for example, may not seem like much, but miss a payment again, or for an extended period, and you'll be hit with further late fees. The late fees, or monthly account fees, can quickly add up to a substantial amount.

No credit score impact when you apply

In most cases your BNPL account application will not trigger a hard credit enquiry and therefore won't affect your credit score.

Quick and easy to get set up

All you'll usually need to create an account on the spot is your phone, email address, home address, and debit or credit card details. With little to no effort involved, you can sign up for an account as you line up at the store counter or proceed to the online checkout.

Spending limit for some users

When you first open your account you may find that you can't pay for large purchases via BNPL. You'll first need to establish a record of timely payments of gradually increasing size. Your spending and payment habits – such as how large your regular purchases are, how often you make payments on time or the number of late fees you've accumulated – can limit your spending and may result in a tighter spending cap than you would like.

There may be a choice of repayment terms

While some BNPL providers have rigid instalment plans which can't be varied, others offer more flexible repayment plans, especially for larger purchases – but there may be monthly fees involved.

Usable online and offline

Most BNPL services are seamlessly integrated with both online and bricks-and-mortar stores.

Create a budget and avoid impulse buying

It's just as easy to get over your head in debt with BNPL as it is with a credit card. You'll want to craft a budget that fits your household income and expenses, and your ability to make timely payments. Don't be fooled by BNPL's interest-free attributes – you could be making purchases you won't be able to settle.

Keep track of your spending

If you've made multiple purchases, it won't hurt to give your BNPL account dashboard a thorough once-over every week to track your latest purchases and pending payments. That should allow you to avoid overspending and running up a handful of late fees.

Set payment reminders

While most service providers will automatically deduct payments on the due date, it's up to you to ensure your credit card or bank account has sufficient funds to cover them. Set reminders in advance in case you need to top up the account.

Use a debit card – not a credit card

If you aren't using a debit card, your interest-free finance scheme isn't truly interest free. Instalments charged to your credit card will incur interest if you don't settle your credit card account in full and on time.

Can you change your payment dates?

Sometimes. Many BNPL services give you a repayment schedule option upfront, although selecting a longer repayment option may involve paying more fees. Most services will allow you to repay early without penalty, but check before you do it. If you're having difficulty with repayments and know you're going to be late, contact the service provider in advance of the payment date. They may have hardship provisions to allow you a little more payment latitude with minimum penalties.

Can you get a refund?

You can receive a full or partial refund on your purchases – but you'll first have to get in touch with the retailer itself. Their returns policy will dictate whether or not you can receive a refund, not the fact that you're paying with BNPL. Should your refund request be approved, upcoming instalments will be cancelled and the full or partial amount returned to your account.

Can you pay your bills with BNPL?

Yes, with some service providers you can. Simply select the utility, electrical, or automotive invoice you want to pay.

Do you have to undergo a credit check to use BNPL?

Normally, no. Most providers will not make a 'hard' enquiry on your credit history, although some may perform a 'soft' enquiry. A hard enquiry occurs when you make a formal application for credit, and the credit provider requests a copy of your credit file from a credit bureau, an event which is recorded in your credit history and may temporarily reduce your credit score. A soft enquiry has no impact on your credit score, because the provider may ask you to request your credit file yourself and let them take a look.

However, failing to satisfy repayments can affect your credit rating on future loans should credit unions or banks choose to look into your repayment history and see BNPL credit defaults recorded.

How do BNPL platforms earn money?

To offset interest-free payments, BNPL platforms charge participating merchants a fee on each transaction. They also earn a significant amount in late fees from users who fail to pay instalments on time.

Which stores accept BNPL?

It depends on which provider you are using. Afterpay, for example, is accepted by more than 25,000 brands, but smaller players who have entered the market more recently may have fewer options, or deliberately concentrate on a specialised area of the market, like homewares or home improvements. Each provider's website will have a full list of participating retailers.