BNPL makes big buys feel cheap upfront, but late fees, overspending and credit score damage can make “interest-free” cost a lot more.
You’re half‑asleep on the couch, blue light burning your eyeballs as TikTok serves you yet another pair of “must‑have” sneakers.
Two swipes later, you’re on the website. Add to Cart. $180. Ouch...
You hesitate for maybe half a second but then you spot it: Buy now with 4 interest-free payments.
Suddenly those sneakers don’t cost $180, they cost $45 right now. Future‑you can deal with the rest of the payment.
Sound familiar?
Buy Now Pay Later (BNPL) is a payment method that splits the cost of a purchase into multiple repayments, usually 4 fortnightly payments.
So if you buy something for $100, you only pay $25 in the initial transaction, and then $25 the following fortnight and this repeats two more times until you’ve paid the full $100.
BNPL platforms like Afterpay, Zip Pay, and Klarna have quickly become the norm in everyday purchases, both in store and online.
Research shows that 56% of Gen Z get the “ick” from traditional credit cards and are shifting towards alternative payment methods. While another report shows 38% of Gen Z Australians nominate BNPL debt as their preferred way to manage costs.
But here’s why it’s probably not the best idea to fund your late night shopping sprees with BNPL debt…
BNPL plays into consumer psychology by splitting big purchases into smaller payments. Ultimately, this tricks the mind into focusing on the smaller, immediate cost instead of the total cost.
While it might feel harmless at first, this shift in perspective is dangerous because it normalises buying things you probably can’t afford.
BNPL debt is often advertised as being ‘interest free’, but that’s not the whole truth. Just like other credit loans, this debt is only interest free IF you pay on time. That’s a big IF.
Because if you miss a payment, you’ll be whacked with a hefty penalty fee which can add up much faster than credit card interest (which is already painfully high).
A comparative analysis by Curtin University found the effective annual interest rate for BNPL late fees to be higher than credit card interest rates for major providers like Afterpay and Zip Pay.
Last, and most importantly, using BNPL debt can potentially lead to longer term consequences. If you miss some payments or open too many BNPL accounts, this can be flagged on your credit report and hurt your credit score.
Your credit score is like your financial reputation and helps you get accepted for things like mortgages, car loans, and even rental properties.
If you want to check your current credit score for free, and learn how to improve your score check out the Flux app.
And next time you go to make a payment with BNPL, reconsider your options and see if it’s something you can pay for with your own money!
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