A woman in a yellow shirt passing a shopping bag over a counter to a woman in a denim jacket. They both look happy and are smiling.

“Buy Now, Pay Later” (BNPL) is often promoted as a cheaper alternative to credit cards, but new research shows it could end up costing you more.

BNPL providers, including Afterpay, Klarna, Humm, and Zip Pay, have become popular in recent years, allowing Australians to spread the cost of their purchases over multiple instalments.

Research from Curtin University and Financial Counselling Australia revealed BNPL could end up costing consumers more than if they used a credit card to make a purchase.

The study compared late fees and account-keeping fees of BNPL providers with the annual interest rate of a typical credit card.

It found that a person struggling to make repayments could be charged fees equivalent to a credit card interest rate of 28.28% for Afterpay and 49% for Humm. This is significantly higher than the average interest rate of 22% on a typical credit card.

More than 38% of Australians have used BNPL, with more than 5.9 million active accounts*.

According to Klarna, people who use their product shop 20% more often and purchase an average of 45% more per transaction**.

Curtin University’s Dr Lien Duong said BNPL use could negatively impact people struggling with money. 

“The BNPL industry promotes itself as being ‘interest-free’, however, their late payment fee and monthly account fee can add up to an amount that effectively equates to an extremely high quasi-interest charge,” Dr Duong said.

“It’s evident from our research that BNPL is not a free or low-cost option compared to credit cards.”

Financial Counselling Australia CEO Fiona Guthrie said financial counsellors had seen an increase in the number of people using BNPL for small amounts.

“This is yet another reason why BNPL needs to have the same consumer protections as other forms of credit,” Ms Guthrie said.

If you choose to use BNPL, consider:

  • BNPL could make it easier to overspend – can you really afford the item?
  • What fees will you be charged for using the service?
  • Late payments could appear on your credit report and impact your ability to borrow in future.
  • Late fees may apply to each purchase you make.
  • Lay-by or using another payment method could be cheaper.

If you’re experiencing financial stress or struggling with BNPL debts, contact a free and independent financial counsellor on 1800 007 007 or visit the National Debt Helpline website.

*Source: The Economic Impact of Buy Now Pay Later in Australia

**Source: Payment methods that increase sales

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