How to use buy now pay later loans like Afterpay or Zip

How buy now pay later works

Buy now pay later options like Afterpay or Zip are popular with both shoppers and retailers. They’re widely available when shopping online or instore. Here’s how they work:

• When you buy something, you pay one quarter of the cost and the BNPL company pays the rest.
• You receive the item straight away.
• You pay the BNPL company back in instalments – typically in three additional repayments each fortnight.

For example, you might want to buy a $200 pair of trainers in a shop that offers Afterpay. You download the app, enter your details, and are approved. You pay $50 up front, take your trainers home, then make three fortnightly repayments of $50 each.

If you miss a repayment because you don’t have enough funds in your bank account when Afterpay goes to deduct each $50, you are charged an initial late fee of $10 and a further $7 if the payment remains unpaid 7 days after the due date.

BNPL is a type of debt. It’s a way of borrowing without interest or fees (the retailer covers these costs) but having too many at once can be hard to keep track of and tricky to handle. And if you miss repayments, you’ll be charged late fees.

Buy now pay later is interest-free, but it is debt

Going into debt is always a bit risky, since our circumstances might change and it becomes difficult to repay. Sometimes it’s hard to tell what might happen.

The aim is to avoid all late fees, otherwise we end up paying more for something than we intended to. These penalties do add up, as high as the following dollar amounts for each purchase:

• Zip's late fee cap is $40.
• Laybuy's fee cap is also $40.
• Afterpay's late fee cap is $68.

If you have too many of these at the same time, you may find yourself sacrificing too much of your life in order just to meet all your repayments – which is stressful!

The other catch with buy now pay later options is that we can get “upsold” on buying more than we planned to.

For example, buying those $200 shoes and only having to pay $50 at first, it can feel like we can afford to spend more. Buying another $200 item with the same upfront $50 payment, for example, means that we’ve actually spent $400 in the end. Buying a third thing feels like we’re just spending $150 at the time, but we’ve just committed to paying $600!

Buy now pay later FAQs

What happens if I miss a repayment?

You’ll be charged a late fee. If you keep missing repayments, these penalties can go as high as the following amounts per purchase:

• Zip's late fee cap is $40.
• Laybuy's late fee cap is also $40.
• Afterpay's late fee cap is $68.

This means your purchases become a lot more pricey than you initially thought. Unfortunately, in order to not miss repayments and avoid these late fees, you may even find yourself sacrificing other parts of your life – which is stressful!

By law, BNPL providers must offer hardship assistance. If you're struggling, contact the provider immediately. They may be able to extend your repayment deadlines, waive those late fees or modify your repayment plan.

Will it affect my credit score if I miss a repayment?

Yes. You’ll want to avoid this so you’ll have a good credit score and can borrow more in the future. If you find yourself unable to repay entirely, your debt will be referred to a collection agency.

Do I qualify for buy now pay later?

You must be 18 years or over to use them and have a debit or credit card. Some services request your driver’s licence details when you sign up. They will also ask for your full name, home address, email address and mobile number.

So I only pay a part and take home the goods straight away?

Yes. Buy now pay later is a way to spread out the cost of something over four fortnightly payments. You pay the first up front, then the rest of your payments automatically come out of your linked bank account or credit card in the weeks that follow.

Is this for shopping online, or in a store?

Both. Buy now pay later can be used in a store when you’re making a purchase. You can even download the app at the till and sign up on the spot.

How much can I borrow with buy now pay later?

Most maximum limits on BNPL run from $1000 to $1500, but then can edge up higher as you build up more history with the lender.

How quickly do these need to be repaid?

Repayments are typically scheduled with you paying one part up front, and then three additional repayments each fortnight. 

Are my repayments taken out automatically?

Your first payment will be straight away when you get what you’re buying, and the rest of the repayments will be taken out automatically from your bank account or your credit card.

How many buy now pay later repurchases can I have going at a time?

A typical limit with a buy now pay later company is up to $1500, and you can borrow with more than one buy now pay later company. But having too many of these going at one time is tricky to manage – it’s much easier and safer to have only one going at a time.

Can I decide what day repayments are due?

Some buy now pay later companies allow you to choose which day your repayments are due, but many don’t, so it’s good to make sure it will work for you.