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Buy Now Pay Later or 0% Purchase Offer?
Smart Money

Buy Now Pay Later or 0% Purchase Offer?

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Gone are the days when cash was king. Now, when it comes time to pay, you have a whole world of payment opportunities open to you. Sure, you could pay with cash if you want to keep it old school, but it’s much more likely you’ll pay another way, using your debit card, credit card or digital wallet. Or, of course, BNPL.

Over the past few years – and even more so since COVID hit – Buy Now Pay Later services have experienced an overwhelming surge in popularity. They are literally everywhere. Whether you’re at your local shopping centre, at the dentist, at the vet, at the mechanic, ads for BNPL services have become so much part of the scenery that we often don’t notice them anymore.

But how does BNPL compare in the real world? While we covered the ins and outs of BNPL in our earlier post on the topic of BNPL vs. credit cards, we thought we’d dig a little deeper in an effort to compare BNPL specifically to credit cards with 0% purchase offers. After all, one of the main selling points of BNPL is the fact that it doesn’t charge interest.

In this post, we’ll quickly cover the main aspects of how 0% purchase offers and BNPL work, to then get into the pros and cons of using each option. We’ll hit obvious areas such as the costs involved, as well as aspects you may not have considered. And from there, we’ll look at where one option might work better than the other – and how to make that option work for you.

All rates, fees and offers correct at the time of publication as of 30th August, 2021

0% Purchase Offers

First, the basics. What is a 0% purchase offer and how does it work?

What is a 0% purchase offer? Like balance transfer offers and bonus points offers, a 0% purchase offer is just an introductory deal offered on a credit card, designed to entice new cardholders to sign up.

How does it work? When you apply for a credit card with a 0% purchase offer, you will pay zero interest on your purchases over the card’s introductory period. This period may last six months, 12 months, or even up to 18 months, but rarely beyond that.

What does it offer? The main appeal behind a 0% purchase offer is that it allows you to buy what you want and pay no interest over an extended period.

What happens after the offer ends? If you have a balance at the end of the intro period, it will revert to your card’s purchase rate. As your balance will now start attracting interest, this is not an ideal situation to be in. Your goal with a 0% purchase offer is to be smart with your purchases, and repay them before the intro period ends.

Buy Now, Pay Later

Just five years ago, if someone asked you if you wanted to pay with Afterpay, you would have likely said, ‘After-what?’ Buy Now Pay Later just wasn’t a thing. Unless, of course, you were making use of the layby services at your local Target.

Now, Afterpay is everywhere. It has more than 11 million active users around the world, and was recently purchased by global payments giant Square for a cool $39 billion.

But it’s not just Afterpay in the game. There’s Zip, Humm and Openpay. There are newcomers PayPal Pay in 4 and CommBank’s StepPay. There are dozens more, both here in Australia, and overseas.

To give you an idea of the scale of BNPL appeal, just look at Klarna. Founded in Sweden in 2005, Klarna dwarfs Afterpay. Its 90,000,000 active users make 2,000,000 transactions per day, at more than 250,000 merchants in 17 countries.

What is BNPL? As the name suggests, Buy Now Pay Later services allow you to buy now and pay later. Whether you want to buy a new pair of shoes, pay for root canal treatment, or even cover the cost of a round of IVF, you can use a BNPL platform to buy it now and pay later.

How does it work? Each BNPL platform works slightly differently, however most sell themselves on the fact that they allow you to buy something upfront and then spread the cost over a set period of time. Using Afterpay as an example, you split the cost of your purchase into four equal payments, to make the first payment at the time of purchase, then fortnightly thereafter.

What does it offer? Essentially, it allows you to spread the cost of things you don’t want to pay for upfront, often with no interest. Another aspect that appeals to many BNPL users is that many services don’t require a credit check.

What’s the catch? Again, as each platform is different, there are different ‘catches’. You may find yourself paying an establishment fee or ongoing fees using BNPL. You could also end up in over your head if you utilise too many platforms and overextend yourself.

BNPL Providers in Australia

Before we jump into the task of comparing BNPL and 0% purchase offers side by side, it could help to look a little closer at how BNPL services operate here in Australia

  • With Afterpay, you pay in four equal instalments over six weeks, making the first instalment at the time of purchase. Afterpay offers approval in seconds, with no interest to pay. Late fees apply.
  • Zip Co offers a Zip Pay account for everyday spending between $250 and $1,000. Zip Pay charges an ongoing monthly fee and no interest, with flexible repayment options. Zip Money is for purchases over $1,000. It has no interest for three months, but charges an establishment fee, a sign-up fee and monthly fee, again with flexible repayments.
  • Humm similarly splits its offering, allowing users to cover the cost of ‘Little Things’ up to $2,000 and ‘Big Things’ up to $30,000. Neither option charges interest, but there are fees that apply on repayment periods over ten weeks. Flexible repayments are offered.
  • A newcomer to the BNPL scene, PayPal Pay in 4 allows users to spread the cost of purchases over four fortnightly instalments, paying the first instalment at the time of purchase. Pay in 4 charges no interest, and has no sign-up fees or late fees.
  • Openpay offers users purchasing power up to $17,000 (pending a possible credit check). Providing flexible repayment terms up to 24 months, Openpay charges no interest, but charges a range of fees, capped at a total of $200.
  • Another newbie, the recently launched StepPay splits payments of $100 to $1,000 into four equal fortnightly payments. Available to CommBank accountholders only, StepPay can be used anywhere Mastercard is accepted, and comes with no interest and no ongoing fees.
  • Lastly, Klarna. Functioning in much the same way as Afterpay, Klarna allows users to spread purchases over four instalments, with the option of choosing a 36 month financing plan for larger purchases. Klarna charges no interest, but applies tiered late fees based on the purchase amount.

Pros and Cons

Now we understand a little more about how BNPL and 0% purchase offers work, we can compare their pros and cons.

Choice

  • The number of 0% purchase offers available – and how appealing they are – really depends on the credit card market. If card providers are working hard to pull in new cardholders, and there is demand for this type of offer, there may be more 0% purchase offers available, offered over longer periods of time.

If demand lies elsewhere, say in balance transfer offers or bonus points offers, there may not be as many 0% purchase offers to choose from – and the offers that are there, may have much shorter intro periods.

Generally though, if you want to find a card with a 0% purchase offer, you can. The longest 0% purchase offer we currently have on CreditCard.com.au is the ANZ Platinum Credit Card, which offers 0% p.a. on purchases for 17 months.

  • As for BNPL, there is certainly no lack of choice there. We’ve listed the major BNPL players in Australia above, but there are many, many more. Depending on your point of view, this could be a pro or a con.

You may find the breadth of choice intimidating if you’re not sure what to look for. On the other hand, you could find exactly the right fit for your purchase, as long as you’re willing to compare what’s out there – and read the terms carefully.

Useability

  • Useability is definitely not a problem with a 0% purchase offer. As long as the merchant accepts credit cards, you can use your card to buy exactly what you want (up to your credit limit), where you want, and when you want. You don’t have to sign up or opt in, you just use your card to pay, in person or online.
  • On the other hand, useability with certain BNPL providers can be a sticking point. For you to be able to pay with BNPL, the retailer must accept the BNPL service you want to use. While services such as Afterpay may be widespread, they are not universal.

That may mean you have to mix and match BNPL services to pay for different types of purchases, which may be difficult to manage. This could lead to problems with debt if you don’t keep on top of your spending and repayments.

And overseas? While you can use a credit card overseas with ease (while typically paying currency conversion fees), you may not be able to use your BNPL provider of choice. Aussie Afterpay users can use Afterpay in the US, UK, New Zealand and Canada, but again, the retailer needs to accept Afterpay payments for this to be an option.

Borrowing Amount

  • Using a 0% purchase offer, the amount you can spend on your card will be restricted by your credit limit. This will be determined by your card provider after carrying out a credit check, looking at factors such as your income, employment and credit history.

Essentially, this means you should only be provided with a credit limit you can afford to pay back. As long as your credit is good, this should give you the spending power to buy what you need. And if your credit is not great, it should limit your ability to get into trouble.

  • Your purchasing power with BNPL will depend on which BNPL provider you choose – and the factors it uses to determine how much money each user can access.

BNPL services designed to be paid off within four fortnightly instalments typically cap purchases at a lower amount. StepPay, for example caps purchases at $1,000.

Afterpay, on the other hand, says it determines spending limits based on “how you use your account”. This includes whether you make your payments on time, how long you’ve been using Afterpay, and whether you typically avoid declined purchases. Your limit may also be determined by whether you have linked a debit card or credit card to your account.

It’s worth pointing out that some BNPL providers offer much higher spending limits. Humm, for example, offers spending limits on Big Things up to $30,000.

Repayment Period

  • Credit cards typically offer an interest free period on purchases up to a maximum of 55 days. However, a 0% purchase offer provides interest free spending throughout its entire introductory period. This typically ranges between six to 18 months.

Bear in mind that even during the introductory period, you will still have to pay the minimum repayment on the card each month.

  • The repayment period on BNPL varies depending on the platform. With Afterpay, you typically pay the first payment when you make the purchase, and then there are three fortnightly payments to pay it off.

BNPL services that have higher spending limits typically offer longer repayment periods. With a spending limit up to $30,000, Humm offers repayment periods up to 60 months. Openpay caps spending at $17,000, with repayment periods up to 24 months.

Interest

  • During the entire introductory period, you will pay no interest on your purchases with a 0% purchase offer. However, if you fail to repay that spending before the introductory period ends, your balance will revert to your card’s standard purchase rate.

While some cards offer low revert rates – such as the Bankwest Breeze Platinum Card, with a revert rate of 9.90% p.a. – others revert to a much higher rate, upwards of 20% p.a. As interest starts to accrue on that unpaid balance, it could make it much harder to pay off.

  • Most BNPL services sell themselves on the fact that they don’t charge interest. Afterpay, Klarna, StepPay, Zip Pay, PayPal Pay in 4 and Openpay all charge no interest. By spending wisely, you could use these services to spread the cost of your purchases, while paying zip in interest.

 Fees

  • Depending on the card you choose, you may pay an annual fee to access a 0% purchase offer. But, there are cards that offer no annual fee and 0% p.a. on purchases, so these are well worth looking out for.

The Bankwest Breeze card mentioned earlier has no annual fee for the first year, and reverts to a standard annual fee of $69. The St.George No Annual Fee Card is currently offering 0% p.a. on purchases for 12 months, with no annual fee ever.

Aside from annual fees, credit cards can charge a range of other fees, such as cash advance fees, over limit fees, and late fees. But, these can all be avoided when you use your card responsibly.

  • Fees on BNPL again, vary according to the provider. Let’s take a look.
  • Afterpay charges no ongoing fees, but does charge a $10 late fee, with a further $7 fee applied if the payment remains unpaid seven days after the due date. For purchases below $40, a maximum of one $10 late fee will be applied. For purchases over $40, total late fees will be capped at 25% of the original order value or $68, whichever is less.
  • With Zip Pay, there is a $6 monthly fee to use the service, which is waived when the balance is paid in full by the due date. With Zip Money, interest is applied on repayment periods over three months. There is also a $6 monthly fee, which again, is waived when the balance is paid in full by the due date. A one-off establishment fee and a sign-up fee, dependent on the limit also apply.
  • Using Humm to buy Little Things, there are no monthly fees on repayment periods up to 10 weeks. Repayment periods up to 20 weeks have a $8 monthly fee. Both options charge a $6 late fee. Buying Big Things, there is an $8 monthly fee, a $6 late fee, and an establishment fee of $35 to $90 if you are new to Humm, or a $22 additional purchase fee if you’ve used Humm before.
  • With PayPal Pay in 4, there are no establishment fees, ongoing fees or late fees.
  • Openpay charges fees based on the retailer and the size of the purchase, which are capped at a total of $200. A $9.50 default fee applies to late payments, and there may also be a $3.95 processing fee, and $19.50 referral fee on payments that remain unpaid after eight days.
  • With StepPay, there are no establishment fees, ongoing fees or currency conversion fees, but there may be certain fees applied to the linked CommBank account. Late fees will apply, but CommBank states these are capped.
  • Using Klarna, there are no ongoing fees, but there are late fees, determined by the purchase amount. On purchases of $35-$59.99, each late fee is $3 (capped at $9 per order). On purchases of $60-$99.99, each late fee is $5 (capped at $15 per order). On purchases $100-$199.99, each late fee is $7 (capped at $21 per order). On purchases over $200, each late fee is $15 (capped at $45 per order).

As you can see, fees can vary widely between BNPL services. If you use a service with no interest and no ongoing fees – and always make your payments on time – this obviously counts as a pro, because you are accessing the service for free.

On the other hand, if you choose a service that charges ongoing fees, or you make payments late, it will increase your outgoing costs.

Repayment Discipline

  • When you have a card with a 0% purchase offer, you are under no obligation to pay off your purchases within a certain time. While you will have to make your minimum repayments on time, you could essentially let the rest of your balance carry over for as long as you choose.

This is not a great idea, as you really want to clear your balance by the time your intro period ends and your card’s standard purchase rate kicks in. To do this, you need to be fairly disciplined, only spending as much as you can afford to pay back, and making regular repayments so your balance is at zero at the end of your intro period.

  • Most BNPL services require you to stick to a repayment schedule, which is put in place at the point of purchase. With a schedule in place, this could help buyers who lack repayment discipline, encouraging them to keep paying down their purchases, in a way they may not manage with a credit card.
  • However, there are some BNPL providers that don’t provide fixed repayment schedules, such as Zip Co, which works in much the same way as a credit card, in that users simply have to pay a minimum payment and can let the rest of their balance carry over. In doing this, their balance could continue to grow, added to with ongoing monthly fees.

Bad Behaviour Deterrents

  • What’s to stop you from using a 0% purchase offer unwisely? While you are free to repay your purchases as you like, late fees would encourage you to pay at least the minimum on time. The threat of interest hitting your balance may also encourage you to pay it down before the intro period ends.

Ultimately though, the biggest deterrent to bad behaviour with a credit card is the knock to your credit score if you misbehave. Missed payments and late payments on credit cards are reported on the cardholder’s credit report, lowering their credit score and making credit harder and more expensive to come by in the future.

  • As for BNPL, most services charge a late fee to encourage users to pay on time. Some services put a halt to new purchases when there are late payments remaining on the account. As far as we are aware, missed and late payments are not reported to credit reporting agencies. But, if accounts remain delinquent, BNPL providers may choose to hand over the debt to collection agencies.

Credit Requirements

  • To get approved for a credit card with a 0% purchase offer, you will need to meet the card provider’s application criteria. This may mean you need to earn a certain income, hold a steady job, and have good credit history.

While this may sound like a con for some, it can prevent potential cardholders from getting in over their head, borrowing money they can’t afford to pay back.

  • To get approved for BNPL, you may or may not be subject to a credit check. Using Afterpay as an example, you can get approved automatically as long as you’re 18 or over and have a working credit or debit card. It should be noted that Afterpay is essentially relying on the funds available on that card as a ‘credit check’ of sorts.

“As part of our approval process… we reserve the right to conduct a pre-authorisation of your Nominated Payment Source. This may involve placing funds in the account linked to your Nominated Payment Source on hold each time you [use Afterpay]. Once purchases are authorised, we immediately instruct your bank to void this pre-authorisation transaction.”

  • Klarna, on the other hand, carries out a credit check on its users before they make their first purchase, and ongoing throughout their use of the service. Klarna advises this check is visible on the user’s credit report, but will not directly impact their credit score. However, credit enquiries may affect the decision of other potential lenders, should the user apply for credit elsewhere.

Credit Implications

  • Using a 0% purchase offer correctly, making repayments on time and paying down your balance, you should see your credit improve as a result. On the flip-side, you may see your credit score damaged if you are irresponsible with your card.
  • Using BNPL, you cannot improve your credit score as your repayment history is not reported to credit reporting agencies. This could work against you when you apply for credit in future, as the provider may not have any indication on how well you deal with credit.

As you can see from the above example with Klarna, you may also find your chances of applying for credit in the future are damaged. Having a large number of credit enquires on your credit report can make potential providers think twice.

Extras & Rewards

In terms of perks, this platinum card also provides two passes to the American Express Lounge each year, plus exclusive benefits at David Jones.

  • It’s worth bearing in mind that cards offering perks and rewards tend to come with a higher annual fee. The David Jones American Express Platinum Card, for example, has an annual fee of $295.
  • Depending on your BNPL provider of choice, you may enjoy certain perks and deals when shopping with partner retailers.

You may also benefit from rewards. Afterpay now offers users access to its Pulse Rewards program, rewarding on-time payments with benefits such as exclusive offers from retailers and no upfront payment. Afterpay also allows users to earn Qantas Points on certain spending.

Over at Klarna, users can join the Klarna rewards club to collect a welcome reward of 5,000 bonus Flybuys points. Ongoing, club members can earn 1 vibe for every $1 spent, which can be redeemed within the program or converted to Flybuys points at a rate of 1 vibe per 3 Flybuys points.

Consumer Protection

  • Credit cards are required by law to provide a certain level of consumer protections to cardholders. Most importantly, these laws protect cardholders from taking on too much debt, but credit cards also provide other protections such as zero liability for fraudulent purchases.
  • As the BNPL sector is not currently subject to the National Credit Code, BNPL users do not benefit from the same degree of protection as they do with credit cards or personal loans. Essentially, this allows BNPL providers to offer unregulated purchasing power to users, without checking how their spending may affect their financial circumstances.

With that being said, certain protections are provided by some BNPL services. As an example, users of PayPal Pay in 4 enjoy the same level of security and buyer protection offered on all other PayPal transactions.

Potential for Debt

  • If you have too much debt, if you have troubles making your repayments elsewhere, if taking on new credit will cause you financial stress, you will not get approved for a card with a 0% purchase offer.
  • BNPL services do not carry out checks such as these, and typically do not do credit checks. As a result, BNPL can allow users to gain access to funds that place them further in debt, ultimately making their circumstances worse.

ASIC reported in November 2020 that one in five consumers in the past year had missed or been late paying other bills in order to make their BNPL payments on time. Missed payments included things such as household bills (44%), credit card payments (32%) and home loan repayments (22%).

The report also revealed that some users were experiencing financial hardship in order to make BNPL payments on time, with admissions of cutting back on or going entirely without essentials such as meals, or taking out additional loans.

When to Choose a 0% Purchase Offer

☑ When you want the freedom of spending wherever, whenever
☑ When you have a larger purchase in mind (credit limit dependent).
☑ When you want to pay no interest or fees over a longer period.
☑ When you want to earn rewards or make use of perks.
☑ When you want to use your card to improve your credit.

When to Choose BNPL

☑ When you want to make repeated smaller purchases over a much longer period of time.
☑ When your credit isn’t great.
☑ When you don’t mind putting the work in to find the most appropriate BNPL platform for each purchase.

How to Make it Work

Want our tips on how to make each option work for you? Here goes.

☛ With a 0% purchase offer:

  • Make a plan for your spending.
  • Don’t spend more than you can afford to pay back within the intro period.
  • Make – and keep to – a repayment plan to pay back all your spending before the intro period ends.
  • Understand what fees you will pay and what your rate will revert to.

☛ With BNPL:

  • Understand how your BNPL service works, and what it works best for.
  • Don’t overextend yourself by spending too much.
  • Be sure you can manage all your accounts effectively.
  • Make your repayments on time and avoid fees wherever possible.
Photo source:
Getty Images
https://www.afterpay.com/en-AU
https://zip.co/au
https://www.shophumm.com/au/
https://www.paypal.com/au/webapps/mpp/paypal-payin4
https://www.commbank.com.au/banking/buy-now-pay-later/steppay
https://www.klarna.com/au
Founder - Roland B Bleyer

Roland Bleyer

Founder of Creditcard.com.au. Roland has extensive knowledge about credit cards in Australia. Known as a credit card expert, he has been featured on tv and in various publications. Some popular offers on our site right now include the ANZ Low Rate. This special offer has no annual fee first year, a low purchase rate and long 0% balance transfer. Have a look also at the huge 0% for 30 months balance transfer from Citi with no balance transfer fees.

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