Booming buy now, pay later causing money troubles for 1 in 3 users

Booming buy now, pay later causing money troubles for 1 in 3 users

Almost a third of people who use buy now, pay later services (BNPL) are finding themselves in financial trouble, according to RateCity research.

RateCity has surveyed 1009 Australians to find out what impact these services are having on their personal finances, particularly in light of COVID-19 and ahead of the next ASIC review, due out later this year.

RateCity BNPL survey findings:

Who’s using BNPL?

  • 1 in 3 people have used BNPL (32%).
  • More women have used BNPL than men (37% of women compared to 27% of men).
  • Half of 18 to 34-year-olds have used Afterpay, Zip Pay or similar.

BNPL can lead to money troubles:

Almost a third of people (28%) who have used BNPL found themselves in money troubles as a result. This includes:

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

BNPL causing people to impulse buy:

  • More than half of those surveyed (53%) said they are more likely to impulse buy using BNPL.
  • Almost 7 out of 10 young Australians said it makes them more likely to impulse buy (68% of 18 to 34-year-olds).
  • Women are more likely to impulse buy using BNPL than men (women 57%, men 47%).

BNPL booming in Australia

The buy now, pay later market in Australia is booming, with a growing list of providers now available in Australia. Dominating the market is Afterpay, with 3.3 million active customers in Australia and NZ and Zip Co with 2.1 million in Australia. Latitude Pay has 425,000 customers in Australia and NZ.

RateCity research director, Sally Tindall, said: “Every day, thousands of Australians are signing up to these services, all wanting to purchase something now, but delay the pain of actually paying for it.

“Our research found 28 per cent of buy now, pay later users are getting themselves into money troubles, with some unable to pay their bills as a result,” she said.

“It’s concerning more than half of buy now, pay later users surveyed said these platforms caused them to impulse spend."

A spokesperson from Zip Co pointed out that the company’s own numbers do not align with RateCity’s findings.

“RateCity’s research does not reflect Zip’s experience where, despite COVID, only 0.002% of Zip’s customers are in hardship (840 from 2.1 million),” he said.

“Whats more, a recent Senate interim report found (recommendation 8.63) even at the peak of COVID consumer financial hardship requests in March and April 2020, across the BNPL industry was less than 1 per cent.

“More broadly, Zip has always done credit checks on all customers (each month about 1 out of 100 Zip customers is late each month compared with 1 in 6 for credit cards). If a Zip customer misses a minimum payment their account is locked, so they cannot get into a debt spiral, unlike a credit card.”

Ms Tindall said impulse shopping can put a sinkhole into the best laid savings plans.

“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.

“While buy now, pay later has become the school of hard knocks for some Australians, services such as Afterpay put customers on a much shorter leash than a standard credit card, if they stick to just one platform.

“People that have a number of purchases on the go across several platforms risk losing track of their repayments. It can easily translate into multiple late fines and, in some cases, overdrawn fees from your bank.

“If you’re applying for a home loan be aware, heavy use of buy now, pay later services could be a red flag and potentially reduce the amount the bank will let you borrow,” she said.

Tips if using buy now, pay later

  • Read the terms and conditions.
  • Set yourself strict spending limits.
  • Don’t impulse buy.
  • If you get into trouble, pull the pin.

Key BNPL services available in Australia

BNPL provider What can you buy and where can you use it?

Payment schedule

Max value of purchases Account fees Late fees

Perform credit checks?

Afterpay Use at affiliated retailers.

Primarily non-essential items.

4 instalments over 6 wks $2,000 No interest or monthly fees. $10 per late repayment and an additional $7 if you don’t pay in 7 days. Max fee 25% or $68 whichever is lower. No
Bundll Anywhere Mastercard is accepted.

Can be used for essential and non-essential items

Repay within 2 weeks.

Extend between 2 – 12 wks for a fee.


No fees for basic bundle.

A 2-week extension costs $5. A 12 wk plan costs 5% of amount.

$10 late payment fee then account is suspended No credit check for standard bundll.

Credit check for ‘Superbundll’.

Deferit Used only to pay bills (primarily utility bills) 4 fortnightly instalments $2,000 limit per bill $5.99 /mth when you have bills owing.

Card payments include 1.5% + 20c fee.

None. Yes
humm (Little Things) Use at affiliated retailers as well a majority of BPay billers.

Primarily non-essential items.

5 or 10 fortnightly instalments $2,000 No fees if making 5 fortnightly instalments.

$8 mthly fee if making 10 fortnightly repayments.

$6 for each late payment May check your credit rating, but this won't affect your score or leave a record on your file.
Klarna Use in most stores via the Klarna app (excludes supermarkets). Pay in 4 fortnightly instalments.

Can extend for 2 weeks for a fee.

$1,000 Up to $7 fee to extend for 2 weeks (dependent on purchase price). $3 - $15, depending on purchase price, per late payment. Max fee is $45. Yes - visible on your credit report but will not impact your credit score
LatitudePay Use at affiliated retailers.

Primarily non-essential items.

10 weekly repayments. $1,000 None $10 per late payment, capped at $10 for purchase under $50; and $50 for purchases over $50. Yes
Laybuy Use at affiliated retailers.

Primarily non-essential items.

6 weekly repayments Not stated None $10 per late payment and an extra $10 if you don’t pay in 7 days. Max $100 Yes
OpenPay Use at affiliated retailers.

Primarily non-essential items.

Payment plans of between 1 and 24 mths. Not stated Varies according to payment plan and merchant. Up to $9.50 per late repayment and up to $19.50 if you don’t pay within 7 days May do a credit check.
PayItLater Use at affiliated retailers.

Primarily non-essential items.

4 weekly repayments $1000 None $10 per late repayment and an additional $5 if you don’t pay after a week. Yes, but using its own tests and document verification services.
Splitit Use at affiliated retailers.

Some retailers require a credit card

Not stated Works on existing credit card limit. None None No
Zip Pay Anywhere Flexible repayment schedule provided you pay a min $40 / mth $1,500 $6/mth if you have money owing. A late fee of $5 applies after 21 days of not paying the minimum Yes

-Alison Cheung contributed to this story.

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Learn more about credit cards

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.

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.

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.

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.

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 pay off credit cards?

The best way to pay off a credit card bill is to set a realistic spending budget and stick to it. Each month, you’ll get a credit card statement detailing how much you owe and how long it will take to pay off the balance by making minimum repayments. If you only make the minimum repayments, it will take you years to pay off your outstanding balance and add extra costs in interest charges. To avoid any extra charges, you should pay the entire bill. 

Can we pay stamp duty by credit card?

Different states also have different rules about whether you can pay stamp duty with a credit card. Check the payment options for stamp duty on your local state revenue office website.

Some allow payments only from a savings or chequing account, whereas others allow payment through BPAY using your credit card. Also read the fine print to see if BPAY payments on your credit card are considered cash advances, as this could attract a higher interest rate.

How to pay a credit card from another bank

Paying or transferring debt from one lender to the other is called a balance transfer. This involves transferring part or all of the debt from a credit card with one lender to a credit card with another. As part of the process, your new lender will pay out the old lender, so that you now owe the same amount of money but to a new institution.

Many credit card providers offer an interest-free period on balance transfers to help new applicants better handle their debt. During this period, cardholders are not required to pay interest on the debt they brought over from the other card. This can be a great opportunity for consumers to pay off credit card debt with no interest. There are often fees associated with balance transfers; normally, these are a percentage of the amount transferred.

So make sure you read the terms and conditions of the card before transferring any debt across.

Do you need a credit card to get a loan?

You do not need a credit card to get a loan, but you usually need to have a credit history. Without a credit history, a financial institution cannot assess your ‘credit worthiness’, or your capacity to pay off the loan.

If you don’t have a credit card, your credit history can reflect any record of paying off an asset. Without any credit credit history, you’re limited in the type of loans you can apply for. But you may be able to obtain a secured loan against an asset. For more information on improving your credit score, go here

How to get a free credit card

There's no such thing as a free lunch. All credit cards come with associated costs when used to make purchases, even if it’s simply the cost of making repayments.

However, many lenders offer incentives for customers such as a $0 annual fee or 0 per cent interest on purchases during an introductory period. Additionally, paying off your balance in full during an interest-free period means you could only have to pay back the cost of purchases without interest. You could also be eligible for additional rewards such as cashback during that time, saving you more money.

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.

How is credit card interest charged?

Your credit card will be charged interest when you don’t pay off the balance on your credit card. Your card provider or bank charges you the individual interest rate that is associated with your card, which is usually between 10 and 20 per cent. 

The interest will be added onto your bill each month or billing period if you don’t pay off the balance, unless you are in an interest-free period.

You will be charged interest on anything that hasn’t been paid for inside the interest-free period. Usually you will receive a notice on your bill or statement saying you will be charged interest so you have some form of notice before you’re charged.

Why should I check my credit rating?

There are two reasons you should check your credit rating: so you have a better understanding of your financial position, and so you can take action (if necessary) to improve your credit rating.

Lenders use credit ratings or credit scores to assess loan applications. The higher your score, the more likely you are to get approved, and the more likely you are to be charged lower interest rates and lower fees. Conversely, the lower your credit score, the less likely you are to get approved, and the more likely you are to be charged higher interest rates and higher fees.

How do you apply for a credit card?

You can apply for a credit card online, over the phone or in person at the bank. Once you’ve compared the current credit card offers, the application process is quick and easy. Before you get your application started, you’ll need to gather your personal information like proof of ID, payslips and bank statements, proof of employment and details of your income, assets and liabilities. To be eligible for a credit card, you’ll need to be an Australian citizen over 18 and earn a minimum of $15,000 each year. Once you’ve applied for a credit card, you should get a response fairly instantly. If your credit card application has been approved, you should receive a welcome pack with your new credit card within 10-15 days.