What are Buy-Now-Pay-Later services?

Much like old-school laybuy, buy-now-pay-later (BNPL) services allow you to purchase something that you can pay back in segments later. But unlike laybuy, you can get that product or item immediately. BNPL services are designed to be a more manageable way of making larger purchases than using a credit card, especially if you’re on a tight budget.

BNPL services have grown in popularity over the last few years, overtaking credit cards in terms of preferred payment methods – particularly for millennials and Gen Z.  

These transactions are typically facilitated online or through apps, but you can also sign up in-store with some participating retailers. Spending caps are in place and differ amongst the different BNPL platforms. It can be used for smaller purchases up to a few hundred dollars, or tens of thousands in some cases.

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.

Who offers Buy-Now-Pay-Later services?

There are a range of BNPL apps and services on the market, with the most famous being Afterpay. However, all of these platforms differ in terms of their fees, as well as spending limits and repayment structures.

Here are some well-known BNPL services:

  • Afterpay
  • Zippay
  • Hummpay
  • LatitudePay
  • Klarna
  • Laybuy
  • Openpay
  • Brighte

What are the costs of Buy-Now-Pay-Later services?

BNPL services do charge their own fees, which differ for each platform. These fees are typically charged in the event of late payments, and may be one off, or ongoing monthly charges.

However, there are other costs that every Australian should consider before singing up.

  • Overdraft bank fees

Depending on your bank’s terms and conditions, you could also be hit with an overdraft fee on your bank account if you don’t have funds in your account for a direct debit from your BNPL service. However, most BNPL services do send payment reminders ahead of the direct debit date, so hopefully you can make plans accordingly. If yours does not, set reminders ahead of time. 

  • Credit card interest

BNPL services may not charge interest, but your credit card can. If you link your credit card to your BNPL account and don’t pay your bills on time, you could be hit with credit card interest. 

Should you use Buy-Now-Pay-Later services or a credit card?

BNPL services have been pushing credit cards to the side for millennials and gen z for some time now. But there are advantages and disadvantages to choosing BNPL services over a credit card.

Advantages of BNPL over credit cards

The biggest advantage of using BNPL services like Afterpay over credit cards is that you will not be charged interest on your purchases or an annual fee. The use of staggered payment plans enables customers to repay the outstanding debt over a set period of weeks without seeing the debt snowball out of proportion through interest charges.

Further, the application process for BNPL services is significantly easier and more accessible than getting a credit card. Credit card providers have been a lot stricter in recent years about approving customers who may struggle to repay the maximum credit limit. Meanwhile, getting approval for a BNPL platform is typically as easy as downloading the app – as long as you are 18 and have a linked credit or debit card for the account.

It’s also important to keep in mind that a credit card provider will perform a credit check on you when you apply. If you are rejected for a credit card, this will reflect negatively on your credit history and can impact your credit score, which in turn may limit your ability to obtain loans or other financial products in the future.

Advantages of credit cards over BNPL

Put simply, BNPL services are a one-size-fits-all style payment platform. Its purpose is to aid you in paying off purchases in small payment plans. If you’re looking for flexibility, perks and rewards, you’re better off considering taking out a credit card.

There are a range of credit card types available that will suit different credit card users, depending on your spending profile. These include:

If you’re the type of person who loves the perks and rewards that come with premium or rewards credit cards, it’s typically expected that rates or fees may be a little higher, as these costs help to fund those programs.

BNPL services also potentially may not be able to help you if you are travelling overseas and looking to keep costs down. Travel credit cards may offer users special perks, such as travel insurance, rental car hire and more. You also can choose travel cards that offer you reduced or zero overseas fees and costs and allow you to lock in currency at an overseas exchange rate.

It’s no secret that credit cards can come with high interest rates and eye-watering annual fees that, when mismanaged, may lead to a customer growing a hefty debt. But credit card customers can choose to shop around for low rate, low fee options instead.

It is also worth noting that if you are able to sensibly use your credit card and pay your outstanding balance on time each billing cycle, this may help to build your credit history and potentially boost your credit score. Building a good credit history can not only help give you a higher chance of approval for financial products in the future but may help you nab more competitive interest rates. Credit providers typically reserve their most competitive interest rates for customers with excellent credit scores as this shows they are reliable customers with a low risk of defaulting on any loans or card repayments.