Buy Now, Pay Later has quietly become one of the most widely used financial products in Australia. Afterpay alone has more than 3.5 million active Australian customers. Zip isn't far behind. For many people, particularly younger Australians, BNPL has replaced the credit card as the default way to split a purchase — and that's not always a good thing.
The pitch is simple: buy something today, pay it off in four fortnightly instalments, and pay no interest. Compared to a credit card charging 20% per annum, that sounds like a no-brainer. But the true cost of BNPL is more subtle — and for people who aren't careful, it can be surprisingly damaging.
How Afterpay and Zip Actually Make Money
If you're not paying interest, who is? The merchant is. Afterpay charges retailers a fee of around 4–6% of each transaction — significantly more than the 1–2% merchants pay on credit cards. Retailers absorb this cost, which is partly why you rarely see a BNPL discount at the checkout.
Afterpay also collects late fees — $10 per missed payment, capped at 25% of the order value. Zip is more complex: depending on the product, it charges monthly account fees, establishment fees, and interest on longer repayment plans. Zip Money, for example, charges up to 29.95% per annum once the interest-free period ends — higher than most credit cards.
The business model is built on volume, merchant fees, and — to a meaningful degree — the late fees paid by customers who miss payments. That last part is worth sitting with.
The Hidden Costs Most People Miss
The obvious cost is the late fee. Miss a payment on Afterpay and you're charged $10, then another $7 if it remains unpaid. On a $50 purchase, that's a 34% penalty. On a $30 purchase split into four payments, missing one can cost you more than the instalment itself.
But the less obvious cost is behavioural. BNPL is deliberately designed to reduce the psychological friction of spending. Splitting a $200 purchase into four $50 payments feels very different to handing over $200 at once — even though the total is identical. Research consistently shows that people spend more when using BNPL than they would with cash or card, because the pain of payment is deferred and diluted.
The result for many users: a growing stack of overlapping repayment obligations across multiple BNPL platforms. Afterpay here. Zip there. Klarna on the side. Each one feels manageable. Together, they can consume a significant chunk of a fortnightly pay cheque before rent, food, or savings get a look in.
The Credit Score Question
Until recently, BNPL providers were largely exempt from responsible lending obligations and did not conduct formal credit checks. That is changing. Regulatory reform is bringing BNPL under the National Consumer Credit Protection Act, which will require providers to assess a customer's ability to repay before approving a purchase.
More immediately relevant: missed BNPL payments can now appear on your credit file through comprehensive credit reporting. A string of late payments across Afterpay and Zip — even on small amounts — can affect your credit score in ways that matter when you apply for a home loan, a car loan, or a rental property.
How to Use BNPL Responsibly
BNPL isn't inherently bad. Used carefully, it's a genuinely interest-free way to split a planned purchase. The key word is planned. Here's how to use it without it using you:
- Only use it for things you've already budgeted for. If you were going to buy the item anyway and have the money available, BNPL is just a cash flow tool. If BNPL is enabling you to buy something you couldn't otherwise afford, that's a warning sign.
- Limit yourself to one active BNPL platform at a time. Multiple overlapping repayment schedules across different providers is how people lose track. One platform, one purchase at a time.
- Set up automatic payments. Every BNPL provider allows autopay. Turn it on. A $10 late fee on a $50 purchase is a 20% penalty — there's no reason to pay it.
- Never use BNPL for essentials or recurring expenses. Using Afterpay to split your grocery bill or utility payment is a sign that your budget is under strain, not a clever hack. BNPL was designed for discretionary retail purchases.
- Check what Zip is actually charging you. Zip's product range is more complex than Afterpay. Zip Pay charges a $9.95 monthly fee if you carry a balance. Zip Money charges interest once the interest-free period ends. Read the terms before you sign up.
The Bigger Picture
BNPL is a symptom of something worth paying attention to: the normalisation of buying things before you can afford them. For one-off purchases that fit within your budget, it's a fine tool. But the ease and ubiquity of BNPL — available at millions of online checkouts with a few taps — makes it easy to gradually shift into a pattern where you're always paying for last month's purchases with this month's income.
That pattern, compounded across a few years, is the opposite of building wealth. The 50-30-20 rule — 50% to needs, 30% to wants, 20% to saving and investing — doesn't work if 15% of your income is quietly servicing BNPL repayments before you've even thought about your savings.
The question to ask at the checkout isn't "can I afford the fortnightly payment?" It's "can I afford this right now, today?" If the answer is yes, BNPL is a convenience. If the answer is no, it's a debt — just one with better marketing.