Whether you want to shop at an online store or make a big purchase in-store, buy now pay later (BNPL) is a more flexible way to buy products or services. It allows you to pay for your purchases over time rather than having to fund a large purchase immediately.
Although this sounds flexible and efficient, BNPL services aren’t for everyone. A BNPL plan is a form of credit that can negatively affect your credit score if you miss repayments.
In this article, we’ll cover everything you need to know about entering into a BNPL agreement, from how they work to the potential disadvantages of using this financial product.
Let’s get to the following commonly asked questions:
Buy now pay later (BNPL) allows buyers to purchase items and defer paying by choosing the BNPL payment option at checkout. Typically, the consumer will make monthly payments over a short period without incurring extra fees.
BNPL providers are often third-party companies that partner with business owners and major retailers to offer customers the ability to split their payments into interest-free instalments.
You may recognise popular BNPL companies like Afterpay, Klarna, and Zip.
BNPL financing allows consumers to pay for products over time, usually through an instalment plan. This can range from a few weeks to months depending on the purchase size. Consumers typically get reminders of payment due dates through buy now pay later apps.
When consumers choose to use a BNPL plan at checkout, they will sign up with the provider and give some basic personal finance information. They will likely run soft credit checks to ensure the applicant is eligible for a buy now pay later account.
Once the in-store or online payment is made, the BNPL provider pays the retailer on the consumer's behalf. The consumer is responsible for making the split payments to the BNPL provider according to the agreed-upon payment schedule.
Credit cards and BNPLs are both forms of credit that allow consumers to make purchases and defer payments, but there are several differences between the two, including:
Several buy now pay later providers are available in Australia, each with unique features and offerings. Here are the most popular BNPL platforms:
While buy now pay later payments provide consumers with more flexibility around their purchases, there are some potential downsides to be aware of. These include:
Buy now pay later (BNPL) services can provide consumers with increased payment flexibility and the ability to purchase more expensive products by paying over time.
However, before deciding whether to use BNPL services, it's crucial to fully understand the terms and conditions of your contract, including how they may affect your credit score and the consequences of missing payments.
If you found this article helpful, we invite you to stay updated with the WeMoney blog, where we regularly share financial advice. Additionally, you may be interested in reading our article "What is a credit card obligation?" for further insights into managing your finances.
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Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs or financial situation.