By Philippa Billings, Head of Advice, Otivo
For years, buy now pay later lived in a definitional loophole — it walked like credit and spent like credit, but because providers charged fees rather than interest, it sat outside Australia's credit laws. That ended on 10 June 2025. BNPL contracts are now regulated under the National Consumer Credit Protection Act as low cost credit contracts, providers must hold an Australian credit licence, and users have the same core protections as credit card holders. The law caught up with what household budgets already knew. Here's what the change means, where the product still bites, and the three-question test that hasn't changed at all.
Buy now pay later splits a purchase into instalments, typically without interest but with fees for missed payments. Since 10 June 2025, BNPL contracts have been regulated under the National Consumer Credit Protection Act as low cost credit contracts — providers must hold an Australian credit licence, belong to AFCA, apply responsible lending checks, and respond to hardship requests, per ASIC's Regulatory Guide 281.
What changed when BNPL became regulated credit?
Four protections arrived that simply didn't exist before, and each one closes a gap users used to fall through.
Licensing. Providers must hold an Australian credit licence and meet the conduct obligations that come with it — the same baseline as other credit providers.
Responsible lending. New BNPL contracts from 10 June 2025 are subject to responsible lending obligations, in a modified form for low cost credit contracts, meaning providers are required to assess whether the credit is unsuitable rather than approving on a name and a card number.
Hardship rights. Users struggling with repayments can formally request hardship assistance, and providers must respond within set timeframes — a right credit card holders have long had and BNPL users previously didn't.
External dispute resolution. Providers must belong to the Australian Financial Complaints Authority, giving users a free, independent avenue when a complaint goes nowhere internally.
To keep low cost credit status, fees are capped under the regulations — which is the regime's quiet enforcement mechanism. A product that charges beyond the caps loses the modified treatment and faces the full National Credit Code.
If there's no interest, where does BNPL cost money?
Three places, and none of them appear on the price tag at checkout.
Late fees. Miss an instalment and fees apply — capped now, but real, and proportionally heavy on small purchases.
Stacking. The product's genuine hazard was never one purchase in four instalments — it's six purchases across three services, producing a dozen automatic deductions landing on different days. Each commitment is small; the choreography is where accounts go overdrawn, and overdrawn accounts bring their own fees from the bank's side.
Borrowing capacity. Lenders assessing a home loan application treat BNPL commitments as liabilities and BNPL activity as part of spending conduct. Regular BNPL use, and especially missed payments, can now also appear in credit reporting depending on the provider's arrangements. The instalments that felt invisible at checkout are fully visible to a mortgage assessor.
None of this makes BNPL wicked. Used deliberately — one purchase, instalments aligned to pay cycles, cleared on schedule — it's a free-to-use payment timing tool. The regulation exists because averages hide edges, and at the edges the product was compounding hardship for people least able to absorb it.
The three-question test before splitting a payment
The law changed; the discipline didn't. Before any instalment plan, three questions.
- Could this be bought outright today? If the honest answer is no, four instalments don't change the affordability — they relocate it into the next six weeks, where it competes with everything else those weeks already contain.
- What else is already scheduled? A quick count of live instalment plans and their remaining payments. Beyond two or three concurrent plans, most budgets lose track — and losing track is the failure mode.
- Where do the instalments land? Matching payment dates against paydays and existing direct debits is five minutes of admin that prevents the overdraw cascade, which is where a free product starts generating fees.
Anyone answering these three honestly is using BNPL the way it works best — as scheduling, not as capacity.
What if BNPL commitments have already piled up?
The new regime helps here in a way the old one couldn't. Hardship assistance is now a right — a user can formally request reduced or rescheduled payments, and providers must engage with the request. The National Debt Helpline offers free, independent financial counselling, and AFCA handles disputes that stall.
For households wanting to clear the stack and stay clear, the useful step is a full picture — every commitment, every date, every rate — and a repayment plan the budget can actually sustain. That's what Otivo's debt module builds, weighing debt types, repayment details, income, and expenses as regulated advice under Otivo's AFSL and Australian Credit Licence No. 485665.
Frequently asked questions
Does buy now pay later affect a credit score?
It can. Providers holding credit licences may participate in credit reporting, applications can involve credit checks depending on the provider, and lenders assessing loan applications consider BNPL commitments regardless. Treating BNPL as invisible to the credit system is out of date.
Is BNPL cheaper than a credit card?
Used perfectly, both can cost nothing — a card paid in full within interest-free days, or BNPL cleared on schedule. Used imperfectly, they fail differently — cards compound interest on revolving balances, while BNPL accumulates fixed fees and scheduling chaos. The cheaper product is whichever one a particular person actually uses perfectly.
What is a low cost credit contract?
It's the legal category created for BNPL-style products — credit contracts meeting fee caps and conditions set under the National Consumer Credit Protection Act, receiving modified obligations in exchange. ASIC's Regulatory Guide 281 sets out the framework.
Sources
- ASIC — Regulatory Guide 281, Low cost credit contracts. www.asic.gov.au
- ASIC — Media release, new regulatory guidance for buy now pay later reforms. www.asic.gov.au
- ASIC MoneySmart — Buy now pay later services. moneysmart.gov.au
Disclaimer
The information in this communication is current as at July 2026 and has been prepared by Otivo Pty Ltd ABN 47 602 457 732, AFSL and Australian Credit Licence No. 485665. This content is general information only and has been prepared without taking into account your objectives, financial situation or needs. It is not personal financial or taxation advice and should not be relied on as such. Before acting on any information, you should consider its appropriateness having regard to your personal circumstances. This material must not be reproduced in whole or in part, or posted on any social media platform, without the prior written consent of Otivo Pty Ltd.