Aussies who use Buy Now, Pay Later providers could see their credit scores take a hit, as the Albanese government cracks down on products like Afterpay and Zip.
BNPL products require a buyer to pay off a debt in four equal instalments.
But if a customer is late paying off the debt, they incur hefty late fees which can be much more punishing than credit card interest rates.
From Tuesday, BNPL products will be subject to the same rules as credit cards – required to hold a credit license and comply with credit laws regulated by the n Securities and Investments Commission.
Aussies might also start to see missed or late repayments to BNPL providers appearing on their credit reports, affecting their ability to get a loan or mortgage.
BNPL providers will also be required to complete mandatory credit checks about a customer’s financial situation, similar to a credit card application, under the new legislation introduced by the federal government in June 2024.
It follows concern that some customers were borrowing more than they were able to pay back, with BNPL providers accused of acting like credit card companies without being subject to the same rules.
‘Some BNPL providers will report additional information, such as repayments, on consumers’ credit reports,’ Elsa Markula, CEO of the n Retail Credit Association (ARCA), said.
‘However, BNPL providers such as Afterpay will report credit checks only.’
Ms Markula added that BNPL was now the third most used credit product in , behind credit cards and home loans.
‘But too few people understand how it affects their credit profile, especially young ns.
‘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 Aussies to repay their BNPL loans on time to stop their credit reports from receiving a blow.
‘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.
‘Check your credit reports from all three major credit reporting bodies to ensure your information is accurate.’
The new rules come as some Aussies rely increasingly on BNPL because they have maxed out their credit cards.
After paying their mortgage and other household bills, consumers were turning to apps like Afterpay to pay for their groceries and petrol, financial counsellor Claire Tacon told Daily Mail .
What are the big changes?
Apps like Afterpay will now be treated as credit, meaning customers will have to undergo financial checks to borrow money and missed payments will affect their credit scores.
What do I need to do before I sign up now?
Be ready to answer questions about your finances and have your credit score checked before you can borrow money.
Am I impacted if I already have an account?
If you signed up to Afterpay before the changes came into effect on Tuesday, you won’t be subject to the same checks, but should be mindful that missed or delayed payments will affect your credit score.
Will everyone still get the same starting limit with Afterpay?
No, the $600 starting limit for all customers will no longer apply.
What happens if a new customer has a low credit score?
Customers with lower credit scores will receive a lower spending limit, if they are able to borrow money from Afterpay at all.