Buy now pay later

How "Buy Now Pay Later" compares to credit cards

- Last updated on 02 Dec 2020

To help you make a choice about Buy Now Pay Later, here are some options you can consider. These are some examples of what’s available in the marketplace from selected providers.

What are buy-now-pay-later services?

Buy-now-pay-later (BNPL) services are apps or online platforms that allow you to purchase something today that you then pay back in smaller segments. Think old-school layby meets the digital world - except you don't have to wait to pay in full to get your purchase. 

BNPL services were created to not only help customers on tight budgets take home something today that they then pay in the future, but also help make repaying a purchase more manageable than using a credit card.

What you can buy through a BNPL platform is determined by its participating retailers and can range from smaller items like clothing to big-ticket items like furniture and appliances. However, spending caps are typically in place to help reduce some risk to the customer, ranging from a few hundred dollars to tens of thousands on some BNPL platforms.

As credit cards fall out of favour – particularly for millennials and Gen Z – due to their high interest rates and hard-to-meet eligibility criteria, the popularity of BNPL services have skyrocketed in recent years.

Here is everything you need to know if you’re considering joining up with a BNPL service.

Australia's "Buy Now, Pay Later" options

Are there hidden costs?

BNPL services split up your repayments into even segments. The biggest advantage of these platforms is that they do not charge interest on your purchases. But they do charge late fees on missed payments. BNPL late payment fees differ for each platform, which are elaborated on further on this page.  

There are some other costs that your bank may sting you with that you should consider before signing up with a BNPL service: 

  • Overdraft bank fees

If the BNPL service tries to withdraw money from your account for your latest repayment, but you have insufficient funds, you may be charged an overdraft fee. Luckily, BNPL services should send you a reminder before your next direct debit so you can make sure you have money available.  

  • Credit card interest

While the advantage of BNPL services is that they don’t charge you interest, your credit card still can. If you select your credit card to be linked to your BNPL account and are unable to pay off your credit card balance on time, you will be charged interest on this outstanding amount.

Afterpay: friend or foe?


About Afterpay

Launched in 2014, Afterpay is by far the most well-known BNPL service. Afterpay breaks down a purchase into four equal instalments to be paid every fortnight. You won’t be charged interest on your repayments, but you can incur late fees if you miss a scheduled payment. Account holders must be 18 years or older.

How Afterpay works

Instead of making one lump sum upfront payment, Afterpay splits your repayments into four instalments. One instalment is required at checkout, then the remainder every fortnight. You can make repayments any time before your due date. 

The bank account or credit card you nominate for your account will be charged at each payment due date. You’ll also receive reminders about when your repayments are due so you can ensure there’s funds available for direct debit.

For example, a $200 dress would then become four instalments of $50 to be paid over six weeks (as long as you don’t miss a payment).

How to sign up

Affiliated stores

Check Afterpay’s website for a full list of affiliated stores.

Afterpay fees 

  • Initial $10 late fee, and further $7 if payment remains unpaid 7 days after due date.
  • Purchases below $40 – maximum one $10 late fee applied per order.
  • Purchases $40+ - late fees capped at 25% of original order value, or $68, whichever is less. 

RateCity’s verdict

If you’re careful, Afterpay can be a useful shopping tool. To avoid falling into any traps or fees, stick to a budget with your Afterpay purchases. Calculate how much you can spend on splurge items and ensure you can set aside enough money for bills and everyday expenses with your income.

Also consider using your debit card for your Afterpay account instead of a credit card. This will help ensure you’re only spending money you actually have. You’ll also avoid paying interest on your credit card, which is essentially the main point of using BNPL services.

About Zip Pay

Zip Pay is a Sydney-based BNPL service, owned by ASX-listed company, Zip Money. Similar to a credit card, Zip Pay gives users access to credit from $350, $500 or $1,000.

You can choose a weekly, fortnightly or monthly repayment schedule. A $40 minimum payment is expected within the first month.

How it works

Once approved, you’ll be given a credit limit (like a credit card) of $350, $500 or $1,000 to spend interest free. Unlike other BNPL services, this limit can be used to make multiple purchases in a range of stores.

Zip Pay doesn’t charge interest, but it does charge fees on payments not made within their payment cycle. Once a purchase is made, you have anywhere up to 60 days to pay it off, depending on when you made the payment and when you receive your statement. Otherwise you’ll be charged a $6 fee.

For example, if you made a purchase on the first of the month, you’d have until the end of the following month to pay it off (60 days). If you made a purchase on the last day of the month, you’d have only around 30 days to pay it off.

How to sign up

It can link to your Facebook account or your Pay Pal account.

Affiliated stores

Check Zip Pay’s website for a full list of affiliated stores.

Zip Pay fees

  • Monthly $6 fee if there is any balance outstanding
  • $5 late fee for missed payments

RateCity’s review

Zip Pay allows you to make multiple purchases in one store thanks to offering credit limits ($300, $500 or $1,000) as opposed to spending caps like other BNPL services. This may make it a helpful tool for some Aussies looking to do a big shop in one store.

Zip Pay does have a shorter repayment window than some other BNPL services, so it’s best suited for Australians who are diligent about paying their bills on time. Otherwise you run the risk of paying late fees, and being hit with other costs like overdraft fees for your transaction account etc.

About Hummpay

Hummpay is a BNPL service that allows users to split up payments over time on big or small purchases. Small purchases are defined as up to $2,000, which can be repaid fortnightly in 5 or 10 increments. Big purchases are defined as up to $30,000 and you’re given up to 60 months to pay this off, depending on the store and item you buy.

How it works

You apply for funds up to $2,000. Purchases you make are then repaid in five or ten segments, weekly or fortnightly. Similar to how a credit limit works on a credit card, once you’ve repaid your purchases, your ‘balance’ is then freed up and you can spend again.

If you’re looking to buy a bigger-ticket item, Hummpay also offers pre-approval for purchases up to $10,000. You can also apply instore for finance up to $30,000 (depending on what you buy and where you shop). These bigger ticket items are then repaid over 6 months all the way up to 60 months.

To be eligible to open a Humm account, you must be:

  • At least 18 years old
  • Live in Australia
  • Capable of entering a legally binding contract
  • Have a valid and verifiable email address and mobile number
  • Have an Australian credit card or debit card (VISA or MasterCard)

How to sign up

  • Website sign up
  • App sign up
  • In-store sign up

Affiliated stores

Check Hummpay’s website for a full list of affiliated stores.

Hummpay fees

  • $8 monthly fee if paying 10x fortnightly for purchase under $2k
  • $8 monthly fee if paying over 6-60 months for purchases up to $30k
  • Establishment fee of $35-90 for purchases up to $30k
  • Repeat purchase fee of $22 for purchases up to $30k
  • Late payment fee of $6 across all payment models

RateCity’s review

Hummpay has a competitive edge over other BNPL services in that it allows you to segment up payments for bigger items priced up to $30k.

Typically, a store may offer 6 to 60-month interest-free purchases through signing up with a credit card. This may result in being hit with high interest rates on said purchases at the end of the interest-free period, if you’ve not been able to pay off the outstanding balance. Hummpay takes this same model of longer-term repayment but doesn’t charge interest on outstanding balances

It also charges lower late payment fees than some BNPL platforms, but it does charge an ongoing monthly fee for all customers besides those making 5x fortnightly repayments. Further, for those looking to make purchases up to $30k, there is an establishment fee and repeat purchase fee to keep an eye out for.

About LatitudePay

LatitudePay is a BNPL service from Latitude Financial, an Australian financial services company situated in Australia, as well as New Zealand under the name ‘Gem Finance’. It offers customers the ability to purchase items up to $1,000 with repayment plans over 10 weeks. It is commonly found in popular Aussie retailers like Harvey Norman and The Good Guys.

How it works

You apply for a spending limit up to $1,000. Purchases you make are repaid in ten weekly segments, with zero interest charged. LatitudePay allows customers to login to see their shopping history, change payment days, add or change cards and even pay off the outstanding balance early. A late payment fee of $10 will be charged on any missed payments, but LatitudePay do send out reminders to help customers to stay on track with their repayments.

How to sign up

  • Website sign up
  • App sign up
  • In-store sign up

Affiliated stores

Check LatitudePay’s website for a full list of affiliated stores.

LatitudePay fees

  • $10 late payment fee

RateCity’s review

LatitudePay allows you to shop interest-free in many popular Australian retailers. It has a higher spending limit than Afterpay, for example, which may make it a more competitive choice for customers looking to spend a little more.

LatitudePay has a generous repayment window of ten weeks, but customers on tight budgets may struggle to make weekly repayments, as opposed to fortnightly ones – which is the more popular time frame with other BNPL services. It has an average late payment fee of $10, so just be aware of this potential cost before applying.

Should you use BNPL services or a credit card?

Before you make a decision between using a BNPL service or taking out a credit card, it’s worth considering the advantages and disadvantages to choosing one over the other.

Pros of BNPL over credit cards:

  • No interest. The biggest advantage of BNPL over credit cards is that they do not charge you interest on your outstanding balances. The most significant costs you may face are late payment fees or dishonoured payment fees from your own bank. However, if you connect your credit card to your BNPL service, you may be charged interest by your provider.
  • Simple application. Compared to jumping through eligibility hoops with a credit card, applying for BNPL services can be as simple as downloading the app. You will still need to meet the BNPL eligibility criteria, like being over 18, but this is generally much easier than with a credit card.  
  • No credit check. Unlike a credit card, applying for a BNPL service does not require a credit check. If you have poor or no credit history, this may be a handy benefit. 

Pros of credit cards over BNPL:

  • Perks and rewards. BNPL services are simply a means to purchasing items with zero-interest repayment plans. If you’re looking for perks, like hotel stays and rental car insurance, or rewards programs typically reserved to credit cards, you’re out of luck.
  • Variety of choice. Credit cards simply offer a greater variety of choice in the type of products offered for a range of different customers. For example, if you’re an avid traveller, there are credit cards designed to better suit you in terms of reduced overseas costs and complimentary insurance.
  •  Build credit history. If you are paying your credit card in full each statement period, this may help to build your credit history and potentially boost your credit score. 
  • If you would like more information on credit cards, and what type of credit card may suit your spending profile, please read out RateCity Credit Card Guide.