Buy Now Pay Later Schemes: The ‘Addictive and Dangerous’ Predatory Schemes
Buy Now Pay Later Schemes: The ‘Addictive and Dangerous’ Predatory Schemes
The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.
Buy Now Pay Later (BNPL) schemes have become a new trend in the financial market with people constantly looking for a more convenient way of shopping.
While their popularity is increasing, financial advisors are raising concerns about the high-risk lending schemes that are now targeting young Australians.
The number of accounts has surged from five to seven million in the last year, mostly held by people between the ages of 18 to 34.
Although these schemes offer flexibility, they remain an extremely predatory scheme.
What are BNPL schemes?
BNPL is a payment option that allows customers to buy items and pay for them over time by breaking the payments into equal instalments. This payment option has become increasingly popular in Australia, with over 20 schemes available in the market such as Afterpay, Zip Pay and Klarna. While these schemes are convenient, it has been observed that some customers have started to use these schemes for everyday expenses such as groceries, which is leading to a lack of affordability.
The risks of BNPL schemes
The BNPL sector is becoming increasingly popular, but it is not entirely without risks. Many customers are struggling to manage their spending and are letting their fees rack up. A recent survey by GetMyRefund found that almost a quarter of people surveyed had multiple BNPL accounts and over 10 percent had spent more than they intended, letting their fees pile up. This is a worrying statistic that highlights how vulnerable people are to falling into debt because of these schemes.
While BNPL providers currently face voluntary regulation through an industry code, nine providers are already signed up to it. The code demands that providers check the suitability of a transaction worth more than $2000 and provide customers with a proper complaint handling procedure that meets the required Australian Securities and Investments Commission standard. It also requires hardship provisions to ensure that customers facing difficulties receive the help they need.
The impact on young Australians
Young Australians are the most vulnerable to the risks of BNPL schemes. People with thin credit files, in particular, face an increased risk of falling into debt because of it. CEO of GetMyRefund, Carly Woods, explained that as more and more people take out BNPL arrangements to survive, they are buying items as simple as groceries on credit. This high level of use is a sign that people are becoming addicted to BNPL, which is placing them in financial hardship. If urgent regulation is not put in place, then even more Australians will be forced into financial difficulty because of these schemes.
It is important to remember that BNPL schemes can also have adverse effects on credit scores. As young people continually take out loans for everyday use, they may not realise that it could negatively affect their future borrowing ability; ultimately decreasing their chances of obtaining a larger borrowing. This is why Carly Woods wants to see an affordability test put in place before people can take out loans. This will help to ensure that only people who can manage their spending are eligible for BNPL.
The call for regulation
The federal government is now looking to clamp down on BNPL services because of their deceptive practices. The government is calling for submissions into three options recommended by Treasury, Assistant Treasurer Stephen Jones said. While he acknowledged that the industry’s code of practice had worked well so far, he insisted that stronger oversight was crucial as the sector matures.
The first option would involve light-touch regulation combined with affordability tests to strengthen self-regulation.
The second option would involve partial regulation under the Credit Act, which would require providers to obtain an Australian credit license and also strengthen its industry code.
The third option is the most comprehensive, involving full regulation of the sector under the Credit Act, and applying the same responsible lending obligations that currently apply to credit card providers.
Lana Whitbread, who also shared her concern about BNPL schemes, described them as “addictive and dangerous” and that she finds it easy to fall back on them. She revealed that she used these schemes when unemployed, choosing to pay for purchases over bills. Lana has since found employment and now works in Coles Supermarket, where she sees people buying hundreds of dollars’ worth of groceries on BNPL payment platforms. While these schemes offer benefits such as incentive rewards for loyalty, speed and ease, they are putting many Aussies at greater financial risk.
Published:Thursday, 30th Mar 2023 Source: Paige Estritori
Please Note: If this information affects you, seek advice from a licensed professional.
The Commonwealth Bank of Australia (CommBank) has reported a significant surge in online home loan applications, with figures showing a fivefold increase over the year leading up to September 2025. This trend underscores a growing preference among Australian borrowers for digital channels when seeking mortgage solutions. - read more
ANZ Bank has updated its forecasts for the Australian housing market, projecting faster house price growth and delaying expectations for interest rate cuts. The bank now anticipates capital city house prices will rise between 6% and 7% in 2024, followed by increases of 5% to 6% in 2025, and around 5% in 2026. These revised figures suggest a more robust housing market than previously expected. - read more
Recent data indicates a significant resurgence in property investor activity within the Australian mortgage market. In the three months leading up to June 2025, investors accounted for 38% of all new loans written for property purchases, marking the highest level in nearly eight years. This uptick is largely attributed to falling interest rates and persistently low rental vacancies, which have enhanced the attractiveness of property investments. - read more
Economic uncertainty refers to a period of unpredictability and instability in the financial markets and economy. It can be caused by various factors such as global events, political climates, or shifts in market dynamics. During these times, individuals and businesses alike may struggle to predict what will happen next, leading to widespread concern and caution. - read more
As Australians navigate the complex world of finance, understanding the nuances of borrowing can make a significant difference in one’s economic well-being. Being credit-savvy is not just about securing a loan; it's about making informed decisions that align with your long-term financial goals. In this pursuit, comparing loan options emerges as a crucial step for the financially conscious Australian. - read more
Maintaining a good credit score is crucial for financial health. In Australia, a solid credit score can unlock better interest rates, higher credit limits, and improve your chances of loan approval. - read more
Need Help Finding a Loan?
Find out now if you qualify and compare
rates, offers and options from multiple lenders - without a credit check!
All finance quotes are provided free (via our secure server) and without obligation. We respect
your
privacy.
Knowledgebase
Private Mortgage Insurance (PMI): A type of insurance that a borrower might be required to purchase as a condition of a conventional mortgage loan, if the down payment is less than 20% of the property value.
