Buy now pay later options are becoming incredibly popular these days. From Zip, to Afterpay, and even Klarna, the options are out of this world. Research has even concluded that around 5.8 million Australians have at least one of these accounts. However, since these great buy now pay later options have entered stores throughout Australia, people have one big question. How does buy now pay later affect your credit score?
Australian shoppers just can’t seem to get enough of these options, using them for purchases big and small. In this blog post, we will answer the common questions and more to give you more of an idea of just what you’re getting yourself into.
How does buy now pay later affect your credit score and compare to credit cards?
One big reason that people like this option is because of the fact that they promise interest-free shopping. On top of this, people also like the fact that there are little to no fees to deal with. That’s why it becomes confusing when people ask questions like, does buy now pay later affect your credit score?
Why would people be asking these questions with all these things promised? Well, it all lies in the details. So, how does it compare to a credit card?
- Instant access – Whether you’re buying in-store or online, buy now pay later, gives you access to funds instantly. However, credit cards take a week or so to arrive.
- Application – While Zip is harder than others, Afterpay will grant basically anyone an account. It is also instant, and no credit check is involved.
- Costs – Buy now pay later is essentially free. That is yet another appealing factor.
Klarna
Klarna is definitely one of the popular options. With Klarna, you can shop when you want and pay it back over time. Through the app, you pay your purchase back through four interest-free payments paid every fortnight. On the Klarna website, they claim that their instant approval process has zero impact on your credit score. So, does buy now pay later affect your credit score?
Klarna will perform a credit check. They say, “This credit check will be visible on your credit report but does not directly affect your credit score. It may still affect your ability to be eligible for credit at other parties. They can see the credit inquiry on your report and use it as a basis for their final decision.”
If you cannot make your repayment, Klarna will try again. If unsuccessful, you will be charged a $7.00 late fee.
Afterpay
Afterpay is most definitely the most popular of the buy now pay later options. It has the best range of shopping options while also having a bigger name than the other platforms. Afterpay is quite similar to Klarna in the way that you play in four instalments over six weeks. There are no fees at all when you pay on time, though if you do make a late payment, you will be charged.
You will incur a $10.00 late fee with an added $7.00 late fee if it still hasn’t been paid after a further 7 days. The Afterpay website states, “Afterpay does not affect your credit score or credit rating. At Afterpay, we never do credit checks or report late payments. We don’t believe in preventing people from accessing Afterpay because they may have had an old debt from a long time ago.”
Zip
With Zip, you have two different options. Zip Pay and Zip Money. Zip Pay is an account mainly aimed towards everyday spending and has a limit of $1000. Zip Money, on the other hand, is only to be used for purchases over $1000.
Zip Pay
- Interest-free always
- Flexible repayments from $10 per week paid monthly, fortnightly, or weekly
- No sign-up fee
- $6 monthly fee that is waived if you pay your balance by the due date
- Late payment fee: $5
Zip Money
- Every transaction is interest-free or 3 months
- Flexible repayments from $10 per week paid monthly, fortnightly, or weekly
- A one-off sign-up fee, dependant on the limit
- $6 monthly fee that is waived if you pay your balance by the due date
- Late payment fee: $15
Zip does affect your credit score if you don’t pay your bills on time or default on your repayments.
Does buy now pay later affect your credit score?
The answer to does buy now pay later affect your credit score, is dependent on your chosen payment option. Zip and Klarna are both likely to impact your credit score, however, thus far, Afterpay seems to be the safest option. It is always good to understand that all of these options are, in fact, a form of credit.
Just because it isn’t legally recognised as credit, it is a good idea to be cautious and always treat repayments like a normal loan. Make sure to always do your research first and to be sure you can keep up with repayments before you proceed. If you need help with your credit score, contact Clean Credit today to improve your score.