Buy now, pay later has changed how millions of Australians shop. Here’s how services like Afterpay make money, the risks for shoppers, and why they’re now regulated like other forms of credit.
Buy now, pay later, or BNPL, lets shoppers buy something straight away and pay for it in instalments, usually without interest.
The most common model splits a purchase into four payments: one at checkout, then three more every two weeks. Australian company Afterpay, founded in 2014, helped popularise the idea worldwide, and was bought by U.S. payments company Block in 2022. Other providers include Zip, Klarna and PayPal.
How providers make money
Unlike credit cards, most BNPL services don’t charge shoppers interest. Instead, they make most of their money from retailers, who pay a fee on each sale, often a few per cent of the purchase price.
Retailers are willing to pay because BNPL can encourage people to buy more, and attracts younger shoppers who may not use credit cards.
Providers also earn money from late fees when customers miss a payment, and some charge account fees.
The risks
Because BNPL is so easy to use, critics say it encourages people to spend more than they can afford, especially when they have accounts with several providers.
Late fees can add up quickly. Missed payments can also be recorded on your credit report, which can make it harder to get a home loan or other credit later.
Lenders take BNPL accounts into account when assessing home loan applications, because they count as debts.
The new rules
For years, BNPL operated outside the main consumer credit laws, because it didn’t charge interest. That changed on 10 June 2025.
Under new laws, BNPL providers must hold an Australian credit licence, issued by ASIC, and meet obligations similar to other lenders. They must carry out checks to make sure a loan isn’t unsuitable for a customer, cap certain fees, handle hardship requests and belong to the Australian Financial Complaints Authority, which customers can turn to with disputes.
Providers can apply a modified version of the responsible lending rules for small loans, which consumer groups argued was too weak, while the industry argued full rules would be too costly.
Using it wisely
BNPL can be a convenient, interest-free way to spread out the cost of a purchase for people who pay on time. Consumer advocates suggest using only one provider, setting up reminders or automatic payments, and avoiding using it for everyday essentials like groceries, which can be a sign of financial stress.
Anyone struggling with BNPL debts can contact the provider about hardship arrangements, or call the free National Debt Helpline on 1800 007 007.
