Buy Now Pay Later (BNPL) is a method of short-term financing and includes service providers such as AfterPay, ZipPay and Openpay.

BNPL services allow consumers to make purchases and spread out their payments, often interest-free. This industry is forecasted to grow substantially, at an annualised 9.8% over the five years through 2024-25, to $1.1 billion.

The boom of these services has led to interest from the major Australian banks. In fact, The Commonwealth Bank of Australia (CBA) launched its own version of the service known as StepPay. StepPay is a BNPL service that integrates into a smart phone digital wallet or to the CommBank app. Similarly to other BNPL services, StepPay can be used anywhere Mastercard is accepted and purchases of $100 or more are automatically split into four equal, fortnightly repayments.

Furthermore, in late 2020, Westpac announced Afterpay as the first partner on its new digital banking-as-a-service platform. While BNPL services provide consumers with much value, data from ASIC shows that as many as one in five consumers are missing payments, which could lead to credit problems down the road.

It is important to note that BNPL services may leave an “enquiry” on a consumer’s credit file, similar to other forms of credit. Therefore, missing a repayment on a BNPL service could have similar negative impacts to your credit score the way a missed loan or credit card payment would.

Here are five key strategies to keep in mind when BNPL products are being utilised.

1. Do your research – Each BNPL product is different, so it’s important to make sure that all financial obligations under each agreement are understood, as well as the fee structure.

2. Use with restraint – While BNPL services can provide substantial value, they should be utilised with caution. For consumers who find it challenging to manage their money, it can be wise to limit the use of these services. While many of them are often interest-free, these services can charge late fees that can rack up quickly if the repayment criteria is not met.

3. Mind your budget – More important repayment obligations should always come first. BNPL should not be used at the expense of other debt such as a mortgage, car loan or credit card.

4. Link them to your debit card – BNPL services can typically be linked to a debit card or credit card. However, if BNPL debt is being paid off on a credit card, and the balance is not paid in full each month, credit card interest could be paid on those purchases. Therefore, a method to keep to a budget would be to use a debit card, instead.

5. Keep an eye on your credit report – Building a good credit score means using credit carefully, respo and showcasing that debt can be paid on time. If BNPL services are used, usage should be limited and credit reports should be regularly monitored. 

Learn how BNPL will impact your credit report, click here to access your Equifax credit report.