Buy Now, Pay Later (BNPL) services have transformed how Australians shop, making large purchases feel more affordable by breaking them into smaller instalments. While BNPL offers short-term flexibility, the long-term financial impact can be significant if not carefully managed.
As of July 2024, around 43% of Australian adults – equivalent to approximately 8.6 million people – had used BNPL in the preceding six months. While these services may seem like a convenient payment method, growing debt levels suggest that many users are struggling to keep up with repayments. At Wisdom Business Consultants, we’ve seen how unmanageable BNPL debt can affect both individuals and businesses, leading to financial distress, legal risks and credit issues.
Here’s what you need to know about the hidden costs of BNPL – and how to avoid them.
The Hidden Costs of BNPL
1. Rising Debt Levels Across Australia
BNPL services are often marketed as an interest-free alternative to credit cards, but accumulating multiple transactions can quickly lead to significant debt. In 2024, the average BNPL debt in Australia was $3,713, accounting for roughly 15% of a person’s total unsecured debt. However, debt levels vary widely:
- NSW residents carry the highest average BNPL debt at $5,763, while those in the ACT have the lowest at $2,815.
- Young adults (18–24) have the highest BNPL debt, averaging a staggering $7,961, making them particularly vulnerable to financial stress.
These numbers highlight the risk of treating BNPL as “free money.” Without proper budgeting, debt can spiral out of control before users even realise the impact.
2. Late Fees and Unexpected Costs
One of the most common financial traps of BNPL is the accumulation of late fees. While these services advertise “no interest,” they charge steep penalties for missed payments. When multiple transactions are left unpaid, fees can quickly escalate, making everyday purchases far more expensive than initially planned.
3. Damage to Your Credit Score
Unlike credit cards, BNPL services don’t typically require a credit check upon signup. However, missed payments can still affect your credit score. Some providers report defaults to credit bureaus, making it harder to secure loans, mortgages, or business financing in the future.
4. Cash Flow Struggles for Businesses
For business owners, BNPL can be a double-edged sword. While offering BNPL to customers may increase sales, it can also create cash flow issues due to delayed payments. Additionally, businesses that rely on BNPL themselves – whether for stock purchases or operational costs – may find it difficult to manage multiple repayment schedules, leading to financial strain.
How to Avoid the BNPL Debt Trap
BNPL isn’t inherently bad, but it needs to be used wisely to avoid financial pitfalls. Here’s how:
Limit Your BNPL Usage
Only use BNPL for essential, budgeted purchases – not impulse buys. Treat it like any other form of credit and avoid accumulating multiple accounts.
Keep Track of Your Repayments
With BNPL debt averaging $4,245 for mortgage holders and $4,066 for renters, it’s clear that many Australians are juggling significant obligations. Using a budgeting app or spreadsheet can help keep track of due dates and prevent missed payments.
Consider Alternative Finance Solutions
If you’re relying on BNPL for cash flow, explore structured financial solutions such as private lending, debt consolidation, or tailored business finance. At Wisdom Business Consultants, we specialise in helping individuals and businesses regain control of their finances with strategic planning and expert guidance.
Pay Off Existing Debt Before Taking On More
If you’re already managing multiple BNPL repayments, focus on clearing those debts before committing to further purchases. If you’re struggling, seeking professional financial advice can help prevent long-term financial distress.
Final Thoughts
BNPL services offer convenience, but the hidden costs can lead to serious financial consequences if misused. Whether you’re an individual looking to regain control of your budget or a business owner seeking better cash flow management, Wisdom Business Consultants can provide tailored financial strategies to help you move forward with confidence.
If you’re feeling overwhelmed by debt or struggling to manage repayments, contact Wisdom Business Consultants today to explore solutions that protect your financial future.
