Buy Now Pay Later (BNPL) services like Afterpay, Zip, and Humm have become ubiquitous in Australian retail, with over 7 million active accounts. While marketed as interest-free alternatives to credit cards, BNPL contracts carry significant risks that consumers often overlook: late fees that can exceed the cost of the purchase, account freezes that disrupt other payments, and — under new regulations — credit reporting that can affect your ability to get a mortgage or car loan. Australia's regulatory framework for BNPL has undergone significant change, with these products now subject to responsible lending obligations similar to credit cards. Understanding the new rules — and what the contract terms actually say — is more important than ever.
What is a Buy Now Pay Later?
Buy Now Pay Later is a form of point-of-sale credit where a consumer pays for goods or services in instalments (typically 4 fortnightly payments) without interest. The BNPL provider pays the merchant upfront and collects repayments from the consumer. Revenue comes from merchant fees (typically 3-6% of the transaction) and late fees charged to consumers who miss payments. Unlike traditional credit, BNPL products historically avoided regulation under the National Consumer Credit Protection Act 2009, but legislative reforms have brought them into the regulated credit framework.
Red flags to watch for
Some BNPL providers charge escalating late fees — $10 for the first missed payment, $7 more after 7 days — which can quickly exceed the original purchase amount on small transactions.
Under the new regulatory framework, BNPL providers must have hardship processes similar to other credit providers. A contract without clear hardship provisions may not comply with current obligations.
Under the new credit reporting framework, BNPL activity may appear on your credit report. Multiple active BNPL accounts or missed payments can negatively impact your credit score and mortgage applications.
BNPL providers take automatic payments from your linked card or bank account. Without a simple way to pause or cancel direct debits, you may face overdraft fees if your account lacks sufficient funds.
Unlike credit cards (which offer chargeback rights), BNPL contracts may not provide any cooling-off period. If you change your mind about a purchase, you may still owe the full amount to the BNPL provider.
Some providers increase your spending limit automatically based on repayment history, without reassessing your capacity to repay — potentially leading to over-commitment.
Your legal rights
BNPL products in Australia are now regulated under amendments to the National Consumer Credit Protection Act 2009 (Cth), bringing them under the same responsible lending framework as credit cards and personal loans. ASIC has oversight of BNPL providers, who must hold an Australian Credit Licence (ACL) and comply with responsible lending obligations including assessing the consumer's capacity to repay without substantial hardship. The Australian Consumer Law (Schedule 2 of the Competition and Consumer Act 2010) provides baseline protections including unfair contract term provisions (which void unfair terms in standard form consumer contracts) and consumer guarantees. The Privacy Act 1988 and the Credit Reporting Code govern how BNPL data is reported to credit bureaus. AFCA (Australian Financial Complaints Authority) handles disputes between consumers and BNPL providers. State-based consumer protection agencies can also investigate complaints.
Questions to ask before you sign
- 1What are the exact late fees, and is there a cap on total fees that can be charged per transaction?
- 2Will my BNPL activity be reported to credit bureaus, and if so, what information is shared?
- 3What hardship provisions are available if I'm unable to make a payment?
- 4How do I cancel a direct debit or payment authority linked to this account?
- 5Has a responsible lending assessment been conducted to ensure I can afford this credit?
- 6What is the dispute resolution process, and is the provider a member of AFCA?
Disclaimer: This guide is for educational purposes only and does not constitute legal advice. Contract law varies by jurisdiction and individual circumstances. Always consult a qualified legal professional before making decisions based on this information.