Big changes are coming to Buy Now Pay Later. Here's how it affects you

West Australian

3 days ago

Big changes are coming for Buy Now Pay Later providers as tighter regulations aim to stop consumers being affected by potentially harmful credit contracts.
From Tuesday June 10, BNPL products – including Afterpay, Zip and Humm, as well as low cost credit contracts for significant purchases, including solar panels or dental work – will be regulated in the same way as credit cards.
The new legislation was introduced by the Albanese government in June 2024, requiring BNPL providers to hold an Australian credit licence, comply with existing credit laws regulated by the Australian Securities and Investments Commission (ASIC), and establish a new category of low cost credit under the Credit Act.
BNPL providers, under ASIC, may be required to complete mandatory checks and inquiries about a consumer's financial situation, including in relation to their income and expenditure, to prevent financial strain.
BNPL products are the third-most used credit product in the country, sitting behind credit cards (58 per cent) and home loans (21 per cent), according to CreditSmart.
This means consumers may begin to see missed or late repayments appearing on their credit reports.
It also means consumers can expect to undergo mandatory credit checks, which could impact their credit scores.
'Some BNPL providers will report additional information, such as repayments, on consumers' credit reports,' Arca chief executive officer Elsa Markula said.
'However, BNPL providers such as Afterpay will report credit checks only.'
A study from CreditSmart revealed one fifth of Australian consumers use a BNPL service such as Afterpay or Zip, but one third (33 per cent) have never checked their credit reports.
Younger Australians are the biggest consumer of BNPL, with Millennials making up 38 per cent and Gen Z representing 13 per cent. However, 15 per cent of Gen Z said they didn't believe lenders would check their credit report during an application process.
Ms Markula said the change in BNPL regulations would give consumers a harsh reality check when it comes to their credit scores, especially if they were hoping to apply for a loan or a mortgage.'BNPL is now the third most used credit product in Australia, behind credit cards and home loans,' she said. 'But too few people understand how it affects their credit profile, especially young Australians.
'Under the new rules, your BNPL behaviour could directly impact your credit score and your future ability to get a loan, a credit card, or even a mortgage.'
She urged consumers to be wary as the changes may catch them off-guard.
'Not all providers will report the same data at the same time, so check updates from your BNPL provider,' she said.
Ms Markula said the sweeping legislation changes could be a positive move for Australians hoping to improve their credit score.
'Done right, BNPL usage can now be a tool for strengthening your credit profile, especially for younger or credit-invisible consumers looking to access more traditional forms of credit down the track,' she told NewsWire.
She urged consumers to make repayments on time to avoid a negative hit to the credit reports.
'While not all BNPL providers report payment history, where this information is reported it is the most important factor for building or protecting your credit score,' she said.
Consumers have also been cautioned to check their credit score regularly, and watch for errors or missing information.
'Check your credit reports from all three major credit reporting bodies to ensure your information is accurate,' she said.
Ms Markula said the regulation changes should make Australians consider when they use BNPL products, and limit credit applications if unnecessary.
'Apply for credit only when needed; multiple applications in a short time may signal financial stress to lenders,' she said.
'Only take on credit – including BNPL – you can comfortably repay.'