Afterpay versus credit cards: which is better for your finances

Afterpay versus credit cards: which is better for your finances

As credit card debt falls to the wayside, Buy Now, Pay Later services, such as Afterpay or Zip Co are more popular than ever.

But which payment method is better for your finances? And how are banks starting to fight back in the war for our spending money?

The growing popularity of Buy Now, Pay Later

A recent RateCity survey found that nearly a third (32 per cent) of respondents were now using Buy Now, Pay Later (BNPL) services to make purchases. And it’s not hard to see why.

Afterpay, with 3.3 million active customers in Australia and New Zealand, allows customers to spend up to $2,000 in purchases, and make part-repayments on these purchases in four instalments over six weeks. You are charged no interest on the purchases, but a $10 late fee per late payment may incur, plus an additional $7 if not paid in 7 days.

Zip Co comes in a close second to Afterpay, with 2.1 million customers in Australia. Customers are offered a flexible repayment schedule, as long as you meet minimum repayments of $40 a month. Customers can make purchases up to the value of $1,500, and a late fee of $5 applies after 21 days of not making minimum repayments.

Much like credit cards, this payment method can be successful and keep users out of debt, as long as they’re responsible and make repayments on time. However, it doesn’t always breed the healthiest of shopping habits.

The same RateCity survey also found that more than half (53 per cent) of BNPL users said they felt more likely to impulse buy when using these services.

In fact, almost a third (28 per cent) of respondents using BNPL found themselves in money troubles, including:

  • 16 per cent of respondents overstretched the budget, leaving them struggling to pay for other expenses.
  • 14 per cent of respondents paid a late fee.
  • Almost 1 in 10 (9 per cent of respondents) went into overdraft on their bank account because of BNPL payments.

The golden halo around BNPL, when compared to credit cards, needs to be examined carefully, especially by its users. Impulse spending can understandably lead to growing debts, even if it’s just in small increments from late payment fees.

Sally Tindall, research director at RateCity, spoke on impulse buying and how Aussies can keep on top of this bad habit.

“Hit pause before you pay, at least for 24 hours, and if you make a mistake, send your purchase back. There’s nothing worse than having a bad shopping decision hanging in your closet,” she said.

However, a huge component of BNPL services’ success is their seamless transition into digital spaces. Partnering with popular e-commerce sites, such as, as well as brick-and-mortar retailers, such as David Jones, means BNPL are not only accessible, they’re easily digestible for a younger generation.

With BNPL services only requiring proof of identification that you’re over 18, a bank account or credit card, and an app, they’re also considerably easier to access than credit cards.

Their most important advantage over credit cards has long been that you’re not charged interest on your purchases. However, it appears credit cards are stepping up to fight in the war for our spending money, with the creation of no-interest credit cards.

How credit cards are fighting for your finances

Credit card holders in Australia know that their piece of plastic is more than just a way to make payments. It can also be a helpful tool for a range of needs, including overseas travel, complimentary insurances, growing rewards points and earning perks and bonuses.

However, the main advantage of BNPL services over credit cards is that they do not charge interest. Instead, they charge ongoing monthly service fees and/or late payment fees.

As credit card interest rates have hardly moved since the Reserve Bank of Australia’s cash rate was 17 per cent in the ‘90s, it’s not uncommon to find credit cards still charging interest on purchases in the 20 per cent range.

And it’s not just the potentially high purchase rates and cash advance rates. Credit cards on average will typically charge more fees than BNPL services, such as annual fees, late payment fees, account keeping fees and more.

So, it’s no wonder a younger generation of Australians are turning to alternatives to fund their spending.

But two of the big four banks are stepping up to the plate, offering a no-interest credit card alternative to Afterpay and its competitors.

NAB came out swinging first with the StraightUp credit card. It does not charge interest on purchases, but customers will pay a flat monthly fee - tiered depending on your credit limit - up to $20. Customers may have access to credit limits of $1,000, $2,000 and $3,000. If customers do not use the card in a month, the monthly fee is not charged.

CommBank’s NEO credit card was announced a few days later, with a similar tiered monthly fee structure up to $22, depending on the credit limit given ($1,000, $2,000 or $3,000). It too does not charge interest on purchases made by customers.

While CommBank’s offering is not available until late 2020, NAB’s StraightUp card is active right now. Time will tell if this card, and if any emerging competitors, are able to compete for the business of BNPL customers.

Which is better: BNPL or credit cards?

It’s not a clear case of one payment method bad and another good. All financial products come with their own set of risks. It’s up to the user to try to make careful considerations around their budget and financial situation before applying for anything that essentially offers you a line of credit.

For credit card users who constantly find themselves stung by fees and interest, but not keen to make the switch, consider if low-rate or no-annual fee credit card alternatives may be a better fit for your finances.

However, as long as BNPL services continue to offer no-interest solutions with easy application processes – particularly within digital spaces – this method of payment may prove more popular for younger Australians.

Whichever method you personally prefer, keeping your ongoing costs down and paying your outstanding payments on time each month is invaluable for your financial health.

Can I use both BNPL and credit cards?

Something that the battle between BNPL and credit cards often misses, is that one does not negate the other. In fact, there’s no reason you cannot use both a credit card and BNPL services if you want to.

Credit cards can be an invaluable tool for responsible Australians. After all, you can use a rewards or frequent flyer credit card to make everyday purchases to earn rewards points, use a low-rate credit card to finance big, one-off purchases that you pay off slowly, or even use travel credit cards to make overseas spending and insurance more accessible. You could then link your BNPL service to your debit card and reserve this platform for your splurge items. It doesn’t have to be one or the other.

BNPL services will allow you to use your credit card as your linked account. The purchases you make with your chosen BNPL service will be debited from your credit card. Your credit card will still charge you interest on any outstanding balance you have at the end of your statement period. However, if you max out your credit limit or don’t pay your balance on time, you may incur fees and costs from both the BNPL service and your card provider.

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Learn more about credit cards

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.

How do you use a credit card?

Credit cards are a quick and convenient way to pay for items in store, online or over the phone. You can use a credit card as a cashless way to pay for goods or services, both locally and overseas. You can also use a credit card to make a cash advance, which gives you the flexibility to withdraw cash from your credit card account. Because a credit card uses the bank’s funds instead of your own, you will be charged interest on the money you spend – unless you pay off the entire debt within the interest-free period. If you pay the minimum monthly repayment, you will be charged interest. There are many different credit card options on the market, all offering different interest rates and reward options.

Can a pensioner get a credit card?

It is possible to get a credit card as a pensioner. There are some factors to keep in mind, including:

  • Annual income. Look for credit cards with minimum annual income requirements you can meet. 
  • Annual fees. If high fees are a concern for you, opt for a card with a low or $0 annual fee. 
  • Interest rate. Make sure you won’t have any nasty surprises on your credit card bill. Compare cards with a low interest rates to minimise risk.

How easy is it to get a credit card?

For most Australians, there are no great barriers to applying for and getting approved for a credit card. Here are some points that a lender will consider when assessing your credit card application.

Credit score: A bad credit score is not the be all and end all of your application, but it may stop you being approved for a higher credit limit. If your credit score is less than perfect, apply for the credit limit that you need, rather than the one you want.

Annual income: Most credit cards have minimum annual income requirements. Make sure you’re applying for a card where you meet the minimum.

Age & residency: You need to be at least 18 years old to apply for a credit card in Australia, and most require that you are an Australian citizen or permanent resident. However, there are some credit cards available to temporary residents.

What is a credit card?

A credit card is a payment method which lets you pay for goods and services without using your own money. It’s essentially a short-term loan which lets you borrow the bank’s money to pay for things which you can pay back – potentially with interest – at a later date. Credit cards can also be used to withdraw money from an ATM, which is known as a cash advance. Because you’re borrowing money from a bank, credit cards charge you interest on the money you use (unless you repay the entire debt during the interest-free period). When you apply for a credit card, the bank gives you a credit limit which sets the maximum amount you can borrow using your card. Credit cards are one of the most popular methods of payments and can be a convenient way of paying for goods and services in store, online and all around the globe.

Does ING increase credit card limits?

You may want to increase your credit card limit for many reasons, such as having access to more spending money. However, if you are using the Orange One credit card issued by ING, you may not be able to do so. 

ING customers can choose a credit limit of their preference when applying for the Orange One credit card. Depending on your financial situation, this limit can be anywhere between $1,000 and $30,000. If you qualify for a Rewards Platinum card, the minimum credit card limit will likely be $6,000. 

Ideally, you should set your credit card limit knowing how much you can afford to repay each month and keep your expenses lower than this level. With most credit cards, you should have the option of requesting a credit card limit increase at a later time, although you will need to qualify for any increase. With an ING credit card, limit increases are out of the question (at the time this was published), which means you may want to apply for a higher credit card limit from the beginning. Remember that you have the option of decreasing your ING credit card limit at a later time.

How to pay a credit card

There are a few ways to pay a credit card bill. These include:

  • BPAY - allows you to safely make credit card payments online.
  • Direct debits - set up an automatic payment from your bank account to pay your credit card bill each month. You can choose how much you want to pay of your credit card bill when you set up the auto payments.
  • In a branch.
  • Via your credit card provider's app.

Can I transfer money from my American Express credit card to my bank account?

If you’re an American Express credit card customer, you may not be able to transfer money from your credit card to your bank account. However, you may be eligible for cash advances, which involves withdrawing money through an ATM. 

To qualify for a cash advance, you’ll likely have to enrol for American Express Membership Rewards. Consider checking your online credit card account to see if you can withdraw a cash advance and, if so, the fees and charges you’ll incur for this transaction. 

You should remember that cash advances are different from balance transfers, which were available with some American Express credit cards earlier. Balance transfers allow customers to consolidate debt from high-interest credit cards to a credit card offering a lower interest rate. If you only recently applied for an American Express credit card, balance transfers may not be available irrespective of the card you own. 

What should you do if your credit card is compromised?

Credit card fraud is a serious problem. If your credit card is compromised and you’re wondering what to do, here are a few precautionary steps to take.

Contact you credit provider – Get in touch will your credit card provider. If you feel your card has been compromised, you should be able to lock or block it.

Monitor your accounts – Keep an eye on your credit card accounts. Any unauthorised transactions could be a sign your credit card has been compromised.

Check your credit rating – It’s also important to check your credit rating, to ensure you’re not a victim of identity theft or some other financial mischief.

What is a balance transfer credit card?

A balance transfer credit card lets you transfer your debt balance from one credit card to another. A balance transfer credit card generally has a 0 per cent interest rate for a set period of time. When you roll your debt balance over to a new credit card, you’ll be able to take advantage of the interest-free period to pay your credit card debt off faster without accruing additional interest charges. If your application is approved, the provider will pay out your old credit card and transfer your debt balance over to the new card. 

How do credit cards work?

Think of credit cards as a short-term loan where you use the bank’s money to buy something up front and then pay for it later. Unlike a debit card which uses your own money to pay, a credit card essentially borrows the bank’s money to fund the purchase. When you apply for a credit card, the bank assesses your income and assigns you a credit limit based on what you can afford to pay back. At the end of each billing cycle, which is usually monthly, the bank will send you a statement showing the minimum amount you have to pay back, including any interest payable on the balance.

How does credit card interest work?

Generally, when we talk about credit card interest, we mean the purchase interest rate, which is the interest charged on purchases you make with your credit card.

If you don’t pay your full balance each month (or even if you pay the minimum amount), you are charged interest on all the outstanding transactions and the remaining balance. However, interest is also charged on cash advances, balance transfers, special rate offers and, in some cases, even the fees charged by the company.

The interest rate can vary, depending on the credit card. Some have an interest-free period, otherwise you start paying interest from the day you make a purchase or from the day your monthly statement is issued. So avoid interest by paying the full amount promptly.

Should I get a credit card?

Once you've compared credit card interest rates and deals and found the right card for you, the actual process of getting a credit card is quite straightforward. You can apply for a credit card online, over the phone or in person at a bank branch. 

How can I increase my Bankwest credit card limit?

When you apply for a Bankwest credit card, you get assigned a pre-set credit limit, which will end up being the most that you can spend on your credit card before having to pay it off. Your credit limit is chosen for you and your current financial situation, and you should remember not to overspend, irrespective of the limit, in order to avoid racking up a massive bill.

However, banks and lenders understand that your needs will change, and have made it possible for you to increase your credit card limit, allowing you to get extra cash when you need it most. Moreover, with a higher spending limit, you may be able to get access to certain perks and benefits with your Bankwest credit card.

To increase your Bankwest credit card limit, you can visit any of the bank’s branches or call 13 17 19 and follow the steps outlined.