Buy now, pay later: What you need to know

Buy now, pay later (BNPL) is a form of credit that you can use to pay for purchases in instalments over time. Recently, it has been growing in popularity as shoppers seek flexible payment solutions and look to pay for purchases using mobile-friendly BNPL apps.

But what does buy now, pay later mean, exactly? It’s pretty straightforward: With BNPL, you can check out immediately and complete payment of your purchase via multiple instalments, typically over the course of several weeks.

So, instead of paying a lump sum upfront, you can finance purchases at low or no interest rates through a range of online and in-person retailers.

Interested in making your first BNPL purchase? This article explores how it works, when it can be used and answers some frequently asked questions.

How does buy now, pay later work?

Buy now, pay later can come in a variety of forms. Some providers of BNPL offer it as their primary service, while others include it as one of a variety of products. Regardless of the provider, the process works similarly. You’ll create an account through the provider and, when checking out through an approved seller, can apply for a BNPL loan with an approval decision typically coming within seconds. Some BNPL providers may conduct a credit check before deciding whether to approve an application.

Once you’ve created your account and made purchases via the provider’s BNPL method, you should be able to track your purchases and payments via the provider’s app. So, while you may forget to mark down when or how much a payment is, you should be able to pop right into an app or website and view exactly what you owe and when.

When can buy now, pay later be used?

Buy now, pay later can be used for many different types of payments, including small purchases, larger expenses, travel reservations, or gifts for special occasions. BNPL can be used to complete purchases with many e-commerce retailers and large department stores.

For example, you may be buying a new $1,000 sofa for your lounge room. With BNPL, you could complete your purchase by making a $250 initial payment, and then pay the rest in three $250 instalments every two weeks. Perhaps your fridge broke, and you want to buy a new one. On a department store website, you could choose BNPL at checkout and set up a payment plan that works best for your budget.

As with all purchases, you should never spend beyond your means. While buy now, pay later can give you the flexibility to spread out purchases, you should always stay on top of your finances and ensure you aren’t buying something you can’t afford.

There are many important factors to consider when choosing BNPL, including the following:

• Repayment options. Many providers offer different payment plans, such as bi-weekly payments, monthly payments, and plans to pay in full in 30 days.
• Interest payments. Some BNPL providers offer no-interest payments, while others may charge interest depending on the repayment option.
• User experience. Consider if the BNPL app you choose is easy to download, set up, and manage, so you can stay on top of your payments.
• Fees and charges. Some BNPL providers charge late fees for late or missed payments, while other BNPL plans come with no fees. Others may charge account set up and/or account keeping fees.
• Loan amounts. BNPL providers and/or retailers may set maximum purchase amounts for their payment plans.
• Credit checks. BNPL providers may perform a credit check to make an informed credit decision on your application and this might affect your credit score, however they should always tell you in advance if they are going to do so.
• Eligible merchants and transactions. Make sure your favourite merchants accept your BNPL offer at checkout, and that your purchase is an eligible transaction for BNPL.
• Reviews. Read reviews from past and current users to see if they’re satisfied with their BNPL experience or if they suggest other alternatives.

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