Buy Now Pay Later (BNPL) services have surged in popularity across Australia, offering consumers a convenient way to split payments into smaller instalments. Platforms like Afterpay, Zip, and Klarna are now household names, often used for online shopping, fashion, electronics, or even everyday purchases.
But with this convenience comes risk. More Australians are starting to ask: what are the downsides of BNPL, and could a personal loan be a smarter alternative in the long run?
This article takes a closer look at the potential pitfalls of BNPL, compares personal loans vs buy now pay later, and explores when a personal loan might be a better option.
How BNPL Works
BNPL allows you to buy items immediately and pay for them over a set period, usually in four fortnightly instalments. While this can seem straightforward, BNPL is a form of credit, even if it doesn’t charge traditional interest. Instead, BNPL providers earn money through merchant fees and late payment charges.
The ease of use and quick approvals mean BNPL is accessible to a wide range of people, including those who may already be under financial strain. That’s where problems often arise.
The Downsides of BNPL
Despite the appeal, BNPL has several drawbacks that can make it less attractive than traditional lending options. Some of the most significant downsides of BNPL include:
1. Encourages Overspending
BNPL makes it easy to commit to purchases without thinking through the total cost. Because repayments are spread out, buyers often underestimate how much they’re really spending.
2. Multiple Accounts, Multiple Risks
Many consumers juggle two or more BNPL accounts across different providers. This can make it difficult to track upcoming repayments and increases the risk of missed payments.
3. Late Fees Add Up
While BNPL doesn’t charge interest, late fees can be substantial. Missing multiple instalments across different accounts can quickly erode any benefit of “interest-free” shopping.
4. Impact on Credit and Future Borrowing
BNPL providers often report missed payments to credit agencies. This means defaults or repeated late payments can affect your ability to access other forms of credit, including personal loans or mortgages.
5. Not Always Regulated Like Other Credit
Unlike traditional lenders, BNPL services have historically faced lighter regulation. While new guidelines are emerging, there is still less oversight compared to banks or personal loan providers.
6. Financial Stress in Emergencies
Because repayments are automatically deducted from bank accounts, BNPL can worsen financial pressure if your circumstances change suddenly. Many Australians turn to micro-loans in Australia when caught in this cycle, which can create further debt.
Personal Loans vs Buy Now Pay Later
When comparing personal loans vs buy now pay later, there are key differences worth considering:
Personal Loans
- Personal loans offer structured repayments with fixed terms and consistent schedules.
- They provide higher borrowing limits, making them suitable for larger expenses such as consolidating debt or covering medical bills.
- Meeting repayments on time can help borrowers build or improve their credit score.
- Personal loans are regulated under strict lending rules, giving borrowers stronger protections.
Buy Now Pay Later
- BNPL offers quick approvals, often in just minutes and usually without detailed credit checks.
- It is designed for short-term borrowing, typically covering small, everyday purchases rather than major expenses.
- The service is highly convenient, being integrated directly into many online and in-store checkouts.
- BNPL lacks structure, and having multiple accounts can make repayment tracking confusing.
When a Personal Loan Might Be the Better Choice
BNPL works best for small, manageable purchases that can be paid off quickly. But for larger or ongoing expenses, a personal loan often provides more stability and protection.
Personal loans may be a better option when:
- You need to consolidate several debts into one manageable repayment.
- You’re funding a major purchase or an emergency cost.
- You want predictable repayments that fit into your budget.
- You’d like to use credit responsibly to build (or rebuild) your credit score.
How BNPL Can Affect Your Loan Applications
One of the biggest hidden downsides of BNPL is its impact on future borrowing. Even if you manage repayments well, lenders will see BNPL accounts as part of your financial obligations. Multiple active BNPL accounts can also reduce your serviceability.
If you’re planning to apply for a loan in the future, keeping BNPL accounts to a minimum can improve your chances of approval.
Learning More About BNPL
BNPL is still a relatively new type of credit, and many consumers don’t fully understand the risks. If you’re unsure, it’s important to learn more about BNPL before signing up.
Questions to ask yourself may include:
- Do I really need this purchase now?
- Will I be able to cover the repayments if my income changes?
- How many BNPL accounts do I already have open?
- Would a personal loan give me more control and stability?
In many cases, another form of credit may be safer than BNPL for your circumstances.
Preparing for a Personal Loan Application
If you decide a personal loan is the better option, preparation is key. Responsible lenders must follow strict rules to ensure any loan offered is affordable. You can strengthen your application by:
- Paying off or reducing existing BNPL accounts.
- Reviewing your credit file for errors or outdated listings.
- Demonstrating stable employment and income.
- Keeping your banking history clean in the months before applying.
Choose Credit That Supports Your Future
At City Finance, we understand that every borrower’s situation is different. That’s why we offer flexible options, from micro-loans for short-term needs to second-chance loans for those who have faced challenges in the past.
If you’re considering your next step, our team can guide you on how to increase personal loans approval and find a solution that works for your circumstances. City Finance looks beyond the numbers to provide fair, responsible lending. Choosing the right type of credit today can help protect your financial well-being tomorrow.
