How Credit Cards and Buy Now Pay Later Work
Credit cards in simple terms
A credit card lets you borrow money for purchases and then pay it back later. You receive a monthly bill and if you do not pay the full amount by the due date, interest is charged on the unpaid balance. More than one in three Australian cardholders leave part of their credit card debt unpaid each month, which means interest builds up over time.
Among those who do not pay in full, the median unpaid amount is A$1,037.
There are 12.24 million credit card accounts across Australia, with an average balance of A$3,557 and an average interest rate of 18.61% p.a.
Banks often send shiny credit card offers as soon as someone turns 18. Many joke they are not really credit cards at all but “debt cards”, a phrase popularised by Scott Pape. The humour highlights the reality that even a small unpaid balance can quietly accumulate into something much larger.
Buy Now Pay Later explained
Buy Now Pay Later (BNPL) services allow you to split the cost of a purchase into smaller payments over time. You get the item immediately and repay in instalments.
Australians have embraced it. About 41% of adults said they used BNPL within the past six months, and the average BNPL user held around A$964 in debt.
Many use BNPL repeatedly throughout the year, making several separate small loans instead of one big one. Globally, users also tend to have fewer savings and are more likely to have existing credit card debt.
When tools for convenience become layered debt
A recent report found that 69% of BNPL users who also have credit cards end up paying their BNPL bills using those cards.
This effectively converts interest free instalments into regular revolving credit card debt. Some BNPL accounts are now being reported to credit bureaus which means missed payments can impact credit scores.
Key takeaways
A credit card is a short term loan. Paying in full avoids interest.
BNPL is multiple short term loans. Late fees can apply if payments are missed.
Using both can stack debt in ways that are not always obvious.
Both products are borrowing tools. Understanding how they work helps you see the real cost behind swiping, tapping or splitting purchases.