Buy Now, Pay Later

Buy Now, Pay Later is currently a popular way to purchase, but that wasn't always the case. For many years, lay-buy was a popular option for making purchases. It allowed shoppers to have an item held by a store with a small deposit and, once fully paid off, to collect the item.

A key benefit of lay-buy was that if you could no longer afford the item or changed your mind, you could cancel and receive a refund of monies paid, minus a small fee.

Enter Buy Now, Pay Later

Many market it as the modern lay-buy, except you get the items immediately. While it sounds convenient, BNPL services come with financial risks that consumers should be aware of.

How Does Buy Now, Pay Later Work?

BNPL allows you to spread the cost of a purchase over multiple instalments, typically over four fortnights (eight weeks), with no interest. The payments are automatically debited from your bank account.

Why is Buy Now, Pay Later a Problem?

BNPL providers make money primarily from late fees if you miss payments. Additionally, merchants pay fees to offer BNPL services, often leading to higher retail prices.

What Are The Traps and Pitfalls of BNPL?

The many pain points that you can incur from BNPL include:

• BNPL can be addictive and difficult to stop using.
• There is often no credit or affordability check which can lead to being approved for a limit you cannot afford.  New regulations coming into effect on 10^th June 2025 aim to improve this.
• Some BNPL inquiries may appear on your credit file, potentially affecting future loan approvals.
• BNPL operates as revolving credit—once you repay, you can make new purchases, keeping you in debt.
• It encourages overspending e.g., $100 item purchased, broken into four $25 payments seems more affordable.
• Multiple BNPL purchases can accumulate quickly, leading to significant financial strain, repayments are not based on what you can afford. Example: a $2,000 BNPL at the limit could mean repaying $500 per fortnight, making it harder to cover necessities like rent and groceries.
• Your credit limit may increase automatically as you make repayments, even if it is unaffordable.
• BNPL is now being increasingly used for essentials like groceries and bills.  If you need to use this product to pay for everyday essentials, it’s likely you are in financial hardship.

What Are The Alternatives To BNPL?

If you are looking for alternate purchasing methods to BNPL, we recommend the following:

• Use lay-buy where available —some stores still offer this service.
• Budget and save for purchases instead of relying on credit.
• Consider No Interest Loan Schemes (NILs) for necessary purchases, if you meet eligibility criteria.

What to Do if You’re Stuck in the BNPL Cycle

Getting out of the BNPL cycle can be difficult, but it is certainly possible. Take the following steps to regain your financial freedom.

• Stop making new purchases and delete BNPL apps (ensure you can still access your account online).
• Unsubscribe from promotional sales emails that try to keep you in the purchase/debt cycle.
• Review your budget and determine what you can realistically afford to repay.
• Contact the BNPL provider to close your account and negotiate an affordable repayment plan.
• If they refuse to cancel your account, consider stopping direct debits and making manual payments instead.
• Seek help from a financial counsellor for assistance in setting up a manageable repayment plan.

With a move to regulate BNPL in Australia, services will face stricter affordability assessments. It’s important to consider whether you truly need to use BNPL or if better financial choices are available.

Can Better Place Australia Help Me If I'm Struggling With BNPL?

Better Place Australia free financial counselling and mediation services are available to people who have money troubles, including those caused by BNPL. If you live in one of the many government funded areas across Victoria, your first step is to enquire online or request an appointment.

For more real stories about people with financial troubles and how Better Place Australia financial counsellors mediated for them, go to the Financial First Aid home page and scroll down to Real Stories.