The risks of BNPL for those facing financial hardship

By Pamela Hunter - Community Services Manager 

As we continue to feel the ongoing impacts of the COVID-19 pandemic, more and more Australians are facing financial stress. As it stands, more than 13 million Aussies don't have  emergency savings and are living paycheque to paycheque, according to Kylie Holford, VERTO’s Financial Counsellor. In addition, the pandemic continues to impact employment for many, with lockdowns causing temporary ceases coupled with the rise in less stable forms of employment, such as casual and contract work.

In times of financial distress, it is natural to look for ways to solve debt crises, and many are turning to the global phenomenon known as Buy Now Pay Later (BNPL). Unfortunately, while these services can appear to be helpful services on the surface, the reality is that there are risks involved. And unfortunately, the most at-risk tend to be those already vulnerable, such as those experiencing domestic violence or people on welfare.

How do BNPL services work?

BNPL services, such as Afterpay, Zip, and Certegy, essentially allow you to access a small loan to cover the costs of goods or services at the point of purchase. You take the item or service now and pay over instalments (like lay-buy only you get the goods right now). Unlike credit cards or bank loans, they don’t charge interest and they aren’t required to perform a credit check on you, so it’s much easier to access than other lines of credit.  

While this might look like a quick and easy way to get what you want now, and pay later, the reality is that they may just be adding another avenue of debt for families doing it tough. While there are no interest charges, there are late fees.

In fact, according to the Australian Securities and Investment Commission (ASIC), 1 in every 5 BNPL users is behind on repayments, and, most concerningly, 50% of users aged between 18 to 29 have had to cut back on essentials to meet repayments.

What are the risks of using BNPL services?

The bottom line with BNPL services is that anything that sounds ‘too good to be true’ needs to be approached with caution. There are risks associated with these services, particularly if you are already facing financial difficulties, including:

  • Making it easy to spend more money than you can really afford.
  • Putting you in further financial difficulty as purchases add up quickly, and repayments can sneak up on you when you are not monitoring your spend.
  • The potential for long term implications on your credit rating if you default on repayments, which can affect future credit applications for things such as home or car loans.
  • Mounting late payment and collections fees, which vary across platforms. These can add up quickly and become unaffordable.

In addition to the above, BNPL providers are not covered by the National Consumer Credit Protection Act, which means they don’t have the same obligations as banks and other lenders to check that you are able to afford the repayment. They also do not have financial hardship provisions in the event your debts get unmanageable.

Help is at hand

Since VERTO launched its Financial Counselling Service in May 2021, over 70 per cent of people using the service have presented with at least one pay day loan-type debt, if not more, so if you are in this situation, know that you are not alone.

Financial counsellors are trained to assist with financial difficulties. They can help you explore your options to manage debt and look into financial hardship arrangements. In most cases, these arrangements won’t affect your credit score, as long as you keep your end of the bargain.

Financial hardship can present in many forms and is non-discriminatory in who can be impacted. Hardship can occur as a result of illness or injury, loss or change in employment, natural disasters or a change in family circumstances, to name a few. The supports for people experiencing financial hardship are also non-discriminatory and regardless of your age, circumstances, income or assets there are multiple options to suit various circumstances.

These services can provide vital support and a clear pathway forward. VERTO offers a free, professional and confidential financial counselling service for eligible members of the community. If you are experiencing financial difficulties, we encourage you to reach out to VERTO for support. You can contact our team on 1300 4 VERTO (1300 483 786), email This email address is being protected from spambots. You need JavaScript enabled to view it. or visit

VERTO is funded by the Financial Counselling Foundation to deliver this vital service.

Financial difficulties, alongside the ongoing impacts of the COVID-19 pandemic, can affect mental health. If you are experiencing emotional distress, contact Lifeline, 24 hours a day, 7 days a week on 13 11 14.  

Case Study

Ursula used a ‘buy now, pay later’ (BNPL) service to buy several items before Christmas, while she was on Centrelink payments. Soon she was struggling to meet the payments.

Ursula thought the BNPL service had a system where it assessed what she could afford: she had used it once before when there was a limit on how much she could spend. After Christmas, Ursula saw she owed $550 from several different retailers after using BNPL and had already missed two or three $20 payments from some retailers, and some $50 payments from others. She thought some late fees were added but was not sure.

The BNPL service then locked Ursula out of her account, so she was unable to check what was owed. Ursula’s only form of income was Centrelink. She was already paying back a $400 loan to Centrelink, and she and her partner both had other loans and bills. When she applied for hardship through the BNPL service, she was told they would charge no further late fees and that her account would be put on hold.

Ursula’s BNPL debt was then passed to debt collectors, who continued to add fees to the original amount owed. The debt collectors eventually told her she owed $1,323.42. This was much more than the initial purchase amount, and included significant late fees, added after Ursula was assured that there would be no more late fees.