Everything You Need to Know about Buy Now Pay Later

Buy Now Pay Later (BNPL) purchases are on the rise in Australia. The Inside Australian Online Shopping report by Australia Post reveals that 6.7% of online payments are now made via BNPL platforms (such as Afterpay, which recorded $2.3B of purchases in the latter half of 2018). While PayPal is still the dominant method of payment for online shopping, accounting for almost half (48.8%) of all e-commerce purchases, BNPL is gaining ground on debit cards (15.5%) and credit cards (24.4%).

As an increasingly popular payment method among Australians, it’s no surprise more people are using BNPL platforms on the daily. If you’re thinking about giving it a try, make sure you’re fully aware of how these schemes work before signing up.

Here’s a snapshot of everything you need to know about Buy Now Pay Later.

How do BNPL services work?

BNPL services provide a method of paying for items you want or need but can’t afford right now. You simply pay for them over time via a payment schedule. Afterpay spaces out payments over a 4-week period, while ZipPay gives you the freedom to choose your repayment schedule – weekly, fortnightly or monthly.

Unlike credit card payments, you don’t pay interest on these purchases. And unlike Laybuy, you get the item immediately instead of when it’s fully paid off. BNPL platforms make their money from the merchant, which is why you’re rarely charged anything extra for using these services.

This is all sounding pretty good, right? But what’s involved with singing up for a BNPL service?

Using a BNPL Service

Signing up for BNPL is easier than applying for a credit card, which is part of the appeal. Simply make a purchase with a partner retailer and choose the BNPL provider as your payment method. Once the order is approved, your account will be automatically created. You may need to provide proof that you live in Australia, ID and your bank card details.

Potential Late Fees

As with all repayment schedules, it’s imperative to pay on time to avoid late fees when using a BNPL service. Afterpay can charge up to $10 in late fees for orders under $40. This increases for orders over $40 – so you could find yourself with fees totalling up to 25% of your order. ZipPay has a $5 late fee and if your payment is rejected by your bank, you’ll receive a $15.00 dishonour fee.

Purchase Limits

If you’ve linked a debit card to your Afterpay account, you can’t have more than $500 outstanding, or your next purchase will be denied. With a credit card, you’ll receive a cap of $1,500. Similarly, ZipPay accounts are capped at $1,000 (it’s possible to increase your credit limit to $3,000 if you meet certain criteria).

Impact on Loan Applications

Used responsibly, BNPL services have a neutral impact on your credit rating. However, most BNPL companies reserve the right to report issues (like missed repayments) to credit bureaus. It’s important to remember this to ensure you can apply for loans successfully in the future.

Helpful Tips

We all know online shopping can be a little addictive, so it’s necessary to manage our spending. Before adding to cart, work out how much disposable income you have available each month to spend. Being aware of this amount will help you budget any potential repayments from BNPL services – whether they’re weekly, fortnightly or monthly.

There are lots of benefits associated with increasingly popular BNPL services. However, they aren’t risk free and can accumulate into multiple repayments beyond your financial means. But if you see yourself as an organised person and not prone to overspending, BNPL may be for you! For everyone else, you’re probably better off paying upfront.

Check out more money tips on the Cigno blog.

Disclaimer: Please be aware that Cigno Loans’ articles do not replace advice from an accountant or financial advisor. All information provided is intended to be used as a guide only, as it does not take into account your personal financial situation or needs. If you require assistance, it is recommended that you consult a licensed financial or tax advisor.