What is Buy Now Pay Later? How Does It Work?

We’ve all been there: a purchase that you can’t afford right now. But, with a little help from the internet, you can make those purchases for a fraction of the cost and pay them back over time. This is called Buy Now Pay Later (BNPL) and it’s an easy way to get access to credit at competitive rates. In this post, we will discuss what BNPL is and how it works so you can decide if it’s right for you!

What is Buy Now Pay Later?

Buy Now Pay Later is a payment plan for purchases. It’s not a loan, and it’s not a credit card.

What Does Buy Now Pay Later Mean?

Buy Now Pay Later is an abbreviation for the phrase “Buy now, pay later”. In other words, you can purchase something now and pay for it later. For example, you want to buy new furniture for your home but don’t have enough money in your bank account right now; instead of waiting until you get paid next week or having to wait three weeks until payday arrives (if you’re paid every two weeks), you can use BNPL to buy your furniture today by making payments over time.

How Does It Work?

We looked at the way BNPL works in a previous section, but let’s get to the basics.

Buy Now Pay Later is a payment term. It means that if you don’t have enough cash on hand or bank account to buy something, you can use this as an alternative method of paying for it and then make payments over time.

You’ll also be able to use this if you don’t have credit cards or bank accounts—for example, when buying online from e-commerce sites like Pay Later Alligator or other e-commerce websites. 

If we look at how this process works in detail, here’s what it involves:

Are PayPal and Buy Now Pay Later the same?

While PayPal is a platform that allows you to make online payments, BNPL is a payment plan offered by some stores. They are different in terms of their payment methods and usage. PayPal is a website that allows you to make online payments for goods and services with your credit card or bank account. You can also use it as an alternative means of paying for things when you’re out shopping at offline stores. On the other hand, Buy Now Pay Later offers merchants flexible payment plans that allow them to sell their products in instalments instead of cash-at-once transactions.

Using Buy Now Pay Later vs Credit Cards

BNPL is not a credit card. It’s a way to pay for purchases today and pay later. Credit cards are used as an easy way to borrow money from your bank or provider if you need extra cash in the short term—for example, going on holiday or renovating your kitchen. However, BNPL is more like a personal loan where you take out an amount of money for a set period of time (usually 6–36 months), with monthly repayments spread over that period.

You can use it to buy anything from white goods to furniture and appliances, just like with any other loan – but unlike most personal loans, there are no interest rates charged on BNPL.

Does Using Buy Now Pay Later Hurt My Credit?

BNPL is a form of credit, so it can hurt your credit if you don’t pay it back. However, as with any type of credit, it can also help you build good credit by paying off your bills on time every month

Whether or not Buy Now Pay Later negatively affects your credit score depends on the type and amount of things you purchase with this kind of financing. Your report will show that you have used some form of temporary financing (which will be noted as an “instalment payment”), but it won’t go into details about what kind or how much.

What are Some Popular Buy Now Pay Later Services Available in Australia?

If you’re looking for a way to pay for major purchases over time, these are some of the most popular services available in Australia:

PayPal Credit is one of the oldest BNPL platforms. Since it launched in 2007, it has been used by millions of people around the world to finance their purchases. It’s available to users who have an account with PayPal and at least 10% or more saved up as a backup fund (you can also use this money if you need additional funds during your repayment period).

Afterpay: 

Afterpay offers fast-paced payment plans without any interest charges on a vast array of products such as furniture, smartphones, appliances, electronics and other household and entertainment items. You can shop the products today and pay back them over time in six fortnightly instalments. The platform doesn’t usually require credit checks and works with any major bank account in Australia via direct debit payments that occur every two weeks until your order is paid off entirely. The normal Afterpay shopping limit for each store is up to $1000. 

Zip: 

This interest-free credit service allows you to buy now and pay later for up to $1000. There is another option by the same financing company called Zip Money that offers shopping for up to $5000. From as little as $10 per week, you can start making repayments. 

Humm:

In a similar manner to many buy now, pay later companies, Humm lets you divide your purchase into smaller, more manageable instalments, which you can then pay back interest-free every week or fortnight. It’s easy to Buy Now and Pay Later with Humm, not just for the small things, but also for the big things. You can spend anywhere from $1 to $30,000. Money can be repaid over time without interest.

LayBuy:

LayBuy is another popular Buy Now Pay Later service that enables you to spread the cost of your purchase over six weekly interest-free payments. When a new user registers, Laybuy checks their credit history to determine their credit score. You can begin shopping as soon as your Laybuy limit has been assigned to your account after your credit score has been verified and your account has been verified by Laybuy.

LatitudePay:

LatitudePay offers no interest payments over 10 instalments via its digital payments platform. To set up your 10 weekly payments plan with LatitudePay, you will need to add your credit or debit card prior to or during checkout. 

Openpay:

In Openpay, customers can pay for purchases over time, interest-free, by buying now and paying later. Instalments can be spread over two to 24 months (depending on the type of purchase), repaid weekly or fortnightly. In some cases, a credit check may be required as part of the purchase process, depending on what you’re purchasing. In particular, this is the case when your purchase exceeds the amount allocated to you by Openpay.

Klarna: 

Unlike Afterpay, Klarna offers additional financing options. You can also finance over six months with Klarna, as well as pay-in-four transactions. Buying something today and returning what you don’t want using Klarna’s Pay-in-30 option is easy.

A certain set of criteria must be met to be eligible for all these BNPL services in Australia. In order to qualify for a loan, a borrower must be at least 18 years of age. Furthermore, these BNPL services operate as an interest-free option to the borrower but charge a late fee if they fail to repay the instalment amount. There are different late fee terms and conditions for each payment service, so it is important to review them before joining. With Afterpay being the most popular, there are new fintech companies joining the race to provide customers with more flexible BNPL service. 

Conclusion

Buy Now Pay Later is an easy way to pay for purchases and some plans help you build credit.

It is an easy way to pay for purchases and some plans help you build credit. This is especially useful if you have bad or no credit and are trying to get your financial life in order.

BNPL is a great way to stretch your budget because you can do it without having any money upfront. You won’t have to worry about how much money you have in the bank when shopping online with BNPL – just click buy now, and pay later!

BNPL is an easy way to pay for purchases and some plans help you build credit. You can use BNPL to buy what you want when you want it. And with most Buy Now Pay Later services, there are no upfront fees or interest charges!