BNPL lets you take goods home today and pay in instalments, but the provider still gets paid. Here’s where the money comes from and what happens if you miss a payment.
This guide is general information, not technical or legal advice. If you’ve lost money or personal information, contact your bank, IDCARE on 1800 595 160, or report it through ReportCyber at cyber.gov.au.
Quick summary
- BNPL providers pay the shop upfront and earn fees from merchants (typically 2% to 8%), plus late fees and sometimes per-payment charges from shoppers.
- Every BNPL application triggers a credit check, and late or missed payments can be passed on to credit reporting bodies and lower your score.
- From 10 June 2025, BNPL providers must hold an Australian credit licence, be members of AFCA, and offer hardship and complaints services.
- BNPL charges no interest, but fees can still make a purchase more expensive than planned; check your contract for fee caps.
Buy now, pay later (BNPL) is now a standard option at Australian checkouts, and in 2024 adoption here was higher than in any other country. The pitch is simple: take the goods today and spread the cost. But you are entering a credit contract, the provider earns money from the arrangement, and missed payments carry consequences. This explainer covers how it works, who pays for it and how it compares with a credit card.
The pay-in-four model in plain English
When you choose BNPL at the checkout, the provider pays the shop in full straight away, minus a fee, and you repay the provider in equal instalments. For smaller purchases, most platforms follow a pay-in-3 or pay-in-4 model, splitting the cost into three or four equal payments over six to eight weeks. Some services offer longer terms and higher limits for larger purchases, which can take years to pay off. A handful of plans are processed over card networks such as Visa and Mastercard.
As an illustration, imagine a $200 purchase on a pay-in-four plan. You pay $50 at the checkout, then $50 every fortnight until the $200 is covered. Pay every instalment on time and, on most plans, you pay nothing beyond the $200 purchase price.
Where the money comes from: merchant fees and late fees
If you pay on time, the provider’s main income comes from the shop. Providers charge merchants transaction fees of 2% to 8%, well above what standard card processing usually costs. Retailers accept this because the option can lift sales and average order values, and providers also steer shoppers to stores through their own apps and directories.
Consumers can be charged too. Fees may include late fees when you miss a payment or fall behind, and some services add a small charge for every instalment you make. Your bank can add costs as well: an overdrawn fee if your account cannot cover a scheduled repayment, or interest if you are repaying through a credit card. Because instalments are deducted automatically from a linked card, our guide to free trials and subscriptions explains how to keep recurring charges on your cards under control.
Despite the “interest free” advertising, fees can make a purchase more expensive than you planned. Some BNPL arrangements must have limits, or caps, on the fees they can charge. Your contract will tell you whether a cap applies to yours.
Handy tip
Stick to one BNPL service at a time. Juggling several makes it easy to lose track of payments, which is when late fees start stacking up.
What happens if you miss a payment
Miss a payment and the provider charges a late fee. Afterpay, for example, charges an initial $10 late fee that can escalate while the payment stays overdue. If a scheduled deduction leaves your bank account short, your bank may charge an overdrawn fee on top.
Late or missed payments can also be passed on to credit reporting bodies and drag down your credit score. If money gets tight, contact the provider rather than letting payments slide: every provider must run a hardship program and a complaints process. And if a charge looks wrong, such as one you never authorised, our guide to spotting and reporting scams sets out what to do next.
Does it show up on your credit report?
It can. Every BNPL application triggers a credit check, and a cluster of applications on your file can affect your score and act as a red flag for lenders. The arrangements themselves, along with late fees and applications, might also appear on your credit report.
This matters most when you apply for bigger credit. A lender deciding whether to give you a car loan or a mortgage, and at what rate, weighs your score alongside other factors. A string of small BNPL plans, even ones you repaid on time, can count against you.
Buy now, pay later vs a credit card
Both are forms of credit, but they work differently. According to the Reserve Bank of Australia, Australians have over 14 million credit cards between them, carrying roughly $33 billion in debt, and almost $18 billion of that is accruing interest at an average rate above 18%. BNPL charges no interest on the purchase; instead you pay fees, and it is easy to spend more than intended or lose sight of your total balance.
| Buy now, pay later | Credit card | |
|---|---|---|
| Interest on purchases | None on most plans; fees instead | Average rate above 18% (Reserve Bank of Australia) |
| Typical consumer costs | Late fees, possible per-payment charges | Interest on balances not paid off |
| Credit check | Triggered by every application | Triggered when you apply |
| Repayment | Fixed instalments over weeks, or years for big purchases | Flexible; pay in full or accrue interest |
The rules in Australia and where to complain
For years BNPL sat in a legal grey area: it looked like credit and worked like credit, but it was not regulated as consumer credit. That changed on 10 June 2025, when the National Credit Code was extended to BNPL contracts. From that date, anyone offering BNPL must hold an Australian credit licence and be a member of the Australian Financial Complaints Authority (AFCA).
Most BNPL contracts are treated as low cost credit contracts, with modified responsible lending obligations. Providers must make reasonable inquiries into your income, expenditure and credit history, and must check your situation again before increasing your credit limit.
In practice, providers must offer hardship assistance and complaints handling, and you can complain to AFCA if things go wrong. If you are struggling with money more broadly, ask energy providers, phone companies and other billers about payment plans or hardship assistance, and check whether a No Interest Loan might cover an essential purchase. These loans charge no interest, fees or charges.
Before you next choose pay-in-four at the checkout, open the provider’s app and check the instalments due this month and the fees listed in your contract.
Your questions answered
Q: Does buy now, pay later charge interest?
A: Most plans charge no interest on the purchase; instead you pay fees, including late fees and sometimes a charge for every instalment you make. Your bank may add an overdrawn fee if a repayment bounces, or interest if you repay through a credit card.
Q: Will using BNPL affect my credit score?
A: It can. Every application triggers a credit check, and a cluster of credit checks on your file can affect your score and worry lenders. Late or missed payments can also be passed on to credit reporting bodies and lower your score.
Q: What should I do if I can’t make a payment?
A: Contact the provider straight away. Every provider must offer hardship assistance, and they may be able to adjust your arrangement before late fees pile up.
Q: Where can I complain about a BNPL provider?
A: From 10 June 2025, BNPL providers must be members of the Australian Financial Complaints Authority (AFCA), which handles complaints about them. Providers must also run their own complaints and hardship services.