Personal Loans versus Buy Now Pay Later facilities : What to compare and consider

Personal Loans versus Buy Now Pay Later: What to Compare and Consider 

With most retailers now offering Buy Now Pay Later (BNPL) services like Afterpay, Zip and Klarna, Australians are seeing these options everywhere - whether it’s on a checkout screen, a shop window, or through a pushy in - app prompt. 

They’re fast, easy to access, and often feel like a no - brainer when you want something now. But are they always the best option? 

Here’s what to know about how BNPL works, where it can trip you up, and how a personal loan might actually offer more control and better long - term benefits. 

Which One’s Easier to Manage: A Personal Loan or BNPL? 

Let’s walk through a quick comparison using a real - world example. 

Say you spend $1,500 on Christmas shopping - $500 at three different stores. 

Option 1: Personal Loan 

You borrow $1,500 over 9 months. 

• Weekly repayment: $50.04 via direct debit 

• Set, consistent and automated - no dates to juggle, just one payment to manage 

Option 2: BNPL 

You use three different BNPL services at three stores. 

• Store 1: $125 due on purchase, then fortnightly repayments 

• Store 2: Same structure, starting three days later 

• Store 3: Another payment schedule again 

Within two weeks, you’re managing overlapping repayments on three different days, with different providers, each with their own fees and systems. It adds up quickly, and it’s easy to lose track. 

A Growing Problem in Australia 

According to recent ASIC data, one in five BNPL users have missed a repayment or had to borrow elsewhere to keep up. And in the 2023 - 24 financial year alone, millions in late fees were charged across the biggest BNPL platforms. 

So, while BNPL services are advertised as interest - free, they’re definitely not free of consequences. They may be easy to get into - but they’re not always easy to manage. 

BNPL Usage and Late Fees in Australia 

• Increased Late Fees: The proportion of Australians incurring BNPL late fees has risen significantly. In 2020, approximately 5% reported paying a late fee within the previous 12 months. By January 2024, this figure had escalated to 20% finder.com.au 

• Financial Strain: A survey by Finder revealed that 29% of BNPL users had missed paying another bill to meet their BNPL repayments in the past year, highlighting the financial pressure associated with these services .The Australian 

• Multiple Accounts: Financial counsellors have observed that many individuals in financial hardship possess multiple BNPL accounts, often across different providers, exacerbating their debt situation .ABC 

Regulatory Developments 

• Upcoming Regulations: In response to the growing concerns, the Australian government announced plans in March 2024 to regulate the BNPL sector. These regulations aim to introduce stricter credit checks and ensure that BNPL providers assess a consumer's ability to repay before extending credit news.com 

Implications for Consumers 

While BNPL services offer convenience, the lack of stringent credit assessments can lead to overcommitment and financial stress. In contrast, personal loans from regulated lenders like Fair Go Finance involve thorough affordability checks, transparent repayment terms, and the opportunity to improve one's credit score through access to Comprehensive Credit Reporting (CCR). 

Therefore, for individuals seeking financial solutions that promote long - term financial health and creditworthiness, personal loans may present a more sustainable option compared to BNPL services. 

Can You Pay It Out Early? 

Personal Loan: 

Yes, absolutely. With Fair Go Finance, you can pay out your loan early with no fees or penalties and doing so could even save you interest. 

BNPL: 

You can repay early, but it doesn’t reduce your fee structure, and it won’t help your credit score. Worse, carrying BNPL accounts can sometimes impact your ability to be approved for other finance. 

Will On - Time Payments Help Your Credit Score? 

Personal Loan: 

Yes. At Fair Go Finance, we report your good repayment history to the credit bureaus through Comprehensive Credit Reporting (CCR). Every on - time repayment can help strengthen your credit profile and improve your score over time. 

BNPL: 

No. While late payments can hurt your credit score (if reported), making repayments on time usually won’t help it. So even if you’re managing your BNPL accounts well, they’re not helping you move forward financially. 

Who Lends More Responsibly? 

Fair Go Finance (Personal Loans): 

We’re a licensed credit provider, which means we follow the rules set by the National Consumer Credit Protection Act. Every application is assessed properly, based on affordability and suitability. That’s what responsible lending looks like. 

BNPL Services: 

Because BNPL providers structure their services around being “interest - free,” they’re not currently regulated under the same consumer credit laws. That means they’re not required to assess whether the product is right for you - or whether you can actually afford it. 

In short: they can lend to you without knowing your financial situation. And that’s risky. 

So, How Should You Decide? 

If you’re tossing up between using a BNPL service or taking out a personal loan, ask yourself: 

• Do I want one simple repayment or multiple? 

• Will this help or hurt my credit in the future? 

• Am I planning for short - term convenience or long - term stability? 

BNPL can work in small doses, but if you’re trying to get organised, stay on top of your budget, or rebuild your credit, a personal loan may be the better option. 

 Disclaimer

^{The content provided in this article is intended for general informational purposes only. It is not intended to serve as medical, financial, or professional advice. The tips and advice shared are based on general knowledge and are not tailored to the specific circumstances of any individual reader. Always seek professional advice with any questions you may have regarding your health, mental wellbeing, or financial situation.}