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What Is Buy Now Pay Later?

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Last editedDec 20212 min read

If you’ve ever seen instalment agreements listed as an option at checkout, this is an example of "Buy Now, Pay Later" (BNPL) financing. The consumer enters a short-term financing arrangement with a BNPL service provider to spread the cost of their purchase into a series of smaller instalments.

In most cases, the service provider pays the retailer up front to complete the sale. The instalment payments are then made to the provider, not the retailer.

Some BNPL instalment plans add on interest payments, but most are interest-free. There are often no fees unless the customer makes late payments. However, plans can vary significantly so it’s always important to read the fine print before clicking this option at checkout. While some plans require a down payment, others involve no upfront costs to the buyer.

Some well-known providers of buy now pay later include:

  • Affirm

  • Afterpay

  • CommBank StepPay

  • Klarna

  • Latitude Pay

  • PayPal

  • Payright

  • Suncorp PayLater

  • Zip Pay

This list is constantly changing, so it’s worth shopping around to compare rates and payment options

How do buy now pay later plans work?

Retailers can offer a buy now pay later option at checkout, either in person or online. It can appear as an integrated button on your ecommerce website alongside other options like credit cards. In most cases, to use this feature the customer will first need to apply to a BNPL service. They’ll then use their login during the checkout stage.

A buy now pay later plan may or may not involve a credit check, which is something to consider for consumers with poor credit ratings. However, approval is easier than it would be with a credit card or personal loan. Repayments are made to the provider at regular intervals via a linked card or bank account. If the buyer has insufficient funds, the BNPL service provider may charge a late fee or interest.

Are there buy now pay later fees?

In addition to late fees mentioned above, buy now pay later services might also charge additional fees for admin and maintenance. These could include:

  • A fixed monthly fee for account keeping

  • A payment processing fee for each instalment

  • Set-up fees to create your account

  • Overdrawn fees if your payment doesn’t go through

How is buy now pay later regulated in Australia?

The BNPL industry isn’t subject to Australia’s National Credit Code. This means that if you use buy now pay later services, you won’t receive the same level of consumer protection that you would with personal loans or credit cards. BNPL providers don’t have any legal requirement to follow the rules of responsible lending.

However, eight of Australia’s primary BNPL companies drafted and signed a voluntary code of practice in March 2021. This sets out a framework of voluntary minimum standards for companies to meet, including:

  • Cap on late fees

  • Credit checks for transactions over $2,000

  • Minimum user age of 18

Current signatories for buy now pay later Australia include Afterpay, Brighte, Humm, Klarna, Latitude, Openpay, Payright, and Zip.

Consumers must still think about whether or not they’re able to afford products using BNPL credit before making a purchase. While this type of financing can be a useful way to avoid interest fees and spread out the cost of larger purchases, be sure to always read the fine print first.

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