BNPL vs Personal Loans: Which is Better?

When it comes to borrowing money, there are plenty of services available to help you do so. From personal loans to credit cards to Buy Now, Pay Later (BNPL), the number of options available at your fingertips grows bigger every day. Much like choosing a bubble tea flavour, the choice overload to find the best financial option could become overwhelming. 

This article explains the advantages and disadvantages of BNPL services and personal loans and clarifies which one could be the best borrowing option for you.

This article was originally published in October 2022.

On this page: 

• What is BNPL?
• BNPL pros and cons
• What is a personal loan?
• Personal loan pros and cons 
• Which option is better?
• Jacaranda Finance Personal Loans

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What is BNPL, and what does it stand for?

Sometimes referred to as modern layby, Buy Now, Pay Later (BNPL) services allow consumers to delay the full payment of a purchase. The purchase price is usually divided into four or more equal slices, and the consumer is required to pay back every instalment over a short amount of time, typically once a fortnight.

The majority of BNPL providers don’t charge interest, as many of them offer credit limits below the threshold required to do so. Instead, they tend to charge late payment fees for missed payments, commonly around $7 - $10 each time.

Who are the main BNPL platforms in Australia?

According to Roy Morgan, more than four million Australians (19.1%) used a BNPL service at some point in the year to June 2022, and around 83% of Aussies are aware of them.

Finder research from late 2023 ranked the following BNPL platforms by popularity. Note that some of these are no longer available in Australia, as they’ve closed since this survey was taken:

How many Australians have used a buy now pay later service?

Platform	% used at least once
None	49.11%
Afterpay	37.2%
PayPal Pay in 4	17.13%
Zip	16.93%
Humm	4.82%
Openpay (no longer available)	4.23%
Klarna	3.94%
Other	2.66%
Bundll (owned by Humm)	0.49%

Some Aussie banks also have their own BNPL-style payment options, such as Commbank’s StepPay and NAB’s NAB Now Pay Later.

How much is the average BNPL purchase?

According to Mozo, the average Aussie who uses buy now, pay later spends $2,208 annually, or around $184 per month. The average monthly spend is highest for 35 - 44 year olds ($214) and lowest for those aged 65+ ($127). 

BNPL users spend much more if they use more than one platform. Shoppers with just one account spend an average of $145 a month, compared to $268 for those with four or more accounts. 

What’s the average BNPL debt?

NAB’s Australian Wellbeing Survey Q4 2023 reported that the average BNPL debt (that is, money still owed on a BNPL account) was $686 in December 2023, nearly $100 less than the $770 from one year prior.

Average BNPL debts by demographic:

Demographic	Average outstanding balance (Debt)
18-29	$538
30-49	$824
50-64	$687
65+	$553
Men	$623
Women	$740
Lower-income	$681
Higher-income	$749

Pros and cons of BNPL

Below, we’ll summarise both the advantages and disadvantages of using BNPL.

Pros

• No interest. One attractive aspect of BNPL services is that they cannot legally charge interest as the amount borrowed is so small. There are some exceptions for those who offer larger credit limits. 
• Convenient. BNPL is a very convenient way to shop. Paying for something in smaller chunks rather than one lump sum can be an attractive feature, especially for the younger generation.  
• User-friendly. Not much beats a user-friendly experience, and with streamlined and aesthetic processes highly valued by a tech-savvy generation, some of the more popular BNPL services have their finger on the UX pulse.
• Good discounts: Retailers can offer discounts to people who shop with partner BNPL providers. There’s even an ‘Afterpay Day’ now!

Cons

• Costly. Though they usually don’t charge interest, BNPL platforms tend to charge comparatively high fees. For example, based on a purchase of $151 using Afterpay, a customer who either incurred late fees or account-keeping fees would pay an effective interest rate in excess of 28% p.a.
• No credit checks. Though some services may still perform credit checks, BNPLs are not legally obligated to do so. Although this may seem like a pro to some, credit checks are essential to ensure the borrower is in a financial position to be able to make the repayments and not spiral into debt.
• It can hurt your credit score. Missing repayments could still lower your credit score, depending on which platform you use.
• It can affect other loan applications. As most lenders like Jacaranda assess an applicant based on their financial history, lenders will be able to identify the use of BNPL services, which has the potential to lower the chances of loan approval. For more information, read our article on how BNPL can affect your loan application. 
• It’s a little too convenient. As BNPL can be easy to use and seemingly very convenient, it has the potential to become an unbreakable habit. Similar to other lending products, it's important to only spend within your means and ability to pay off your purchases.

What is a personal loan? 

A personal loan is a type of loan offered by lenders and banks to pay for various personal purposes. Personal loans incur a specific interest rate, which is usually based on the applicant’s credit score, credit history, and broader financial circumstances. 

Repayments, which are made in ongoing instalments, are based on the interest rate an applicant is given, the loan term chosen by the applicant, and the amount initially borrowed. Terms usually range from 1 to 5 years, and applicants can usually borrow anywhere between several thousand and tens of thousands of dollars. These figures will depend on the lender.

Personal loan statistics: How many people use personal loans?

Many people in Australia use personal loans every year. According to the 2023 WeMoney State of the Economy Report, 11.3% of Aussies (nearly three million) obtained a personal loan in a six-month period.

In 2024, demand for personal borrowing is spiking. The official Australian Bureau of Statistics (ABS) lending data shows Aussies borrowed $2.58 billion in April 2024 alone - a near 20% increase over 12 months!

The total value of personal lending in Australia is more than $151 billion as of 2024.

Personal loan statistics: average loan size

NAB’s Wellbeing report also found that, as of December 2023, the average outstanding personal loan balance was $10,925, down from $12,000 the previous year. 

Average outstanding personal loan balance:

Demographic	Average outstanding personal loan balance
18-29	$9,538
30-49	$12,639
50-64	$9,479
65+	$11,383
Men	$10,233
Women	$11,525
Lower-income	$5,943
Higher-income	$14,298

Source: NAB Australian Wellbeing Survey Q4 2023.

Pros and cons of personal loans

Pros

• Accessible customer service. Australian credit providers are required to have dedicated customer service options that allow customers to access help regarding their loans. Jacaranda offers customer service on Saturdays, too!
• Competitive market. As there are many lenders in the field, you could find a better rate or better service to suit your needs. 
• Debt consolidation. Many lenders offer debt consolidation loans, in which consumers can combine all their loans and credit into one easy-to-manage loan. 
• There are a variety of purposes. From home improvements to an emergency vet visit, personal loans can be used for larger expenses that some BNPL providers can’t facilitate due to their lending limits.
• Adheres to responsible lending. Personal lenders in Australia must adhere to responsible lending guidelines, meaning they will only lend to people who meet specific requirements and are deemed to be able to repay the loan comfortably. 
• You could boost your credit score. Making timely repayments in full could help you improve your credit score over time if your chosen lender is a Comprehensive Credit Reporting (CCR) participant.

Cons 

• Potential for higher interest. Personal loans could have higher interest rates compared to BNPL. However, a responsible lender is required not to lend to someone they feel could not comfortably pay their loan back. Plus, the ongoing repayments can be spread out over a longer period of time. 
• Could incur fees. Like most ways to borrow money, personal loans could incur fees like establishment fees and monthly fees. 
• It could require security for a larger loan. Though not necessarily a disadvantage, attaching security like a car to a larger amount of money could feel risky for some people. 
• Missing repayments could worsen your credit score.

Which is the better option for you?

As with all forms of personal borrowing, the right option for you entirely depends on the situation you’re in. To help you answer this question, we’ll give you two examples of when one option may trump the other.

When BNPL could be better

Buy now, pay later is a suitable option for purchases on one-off expenses that fall below the usual threshold for a personal loan, which is several thousand dollars. For example, buying a new laptop or some nice new clothes for about $1,000 is okay to do with BNPL, but not with a personal loan.

Afterpay, for example, doesn’t really have a minimum spend and has spending limits as low as $600 and as high as $4,000 for select customers.

Jacaranda Finance’s Personal Loans, on the other hand, have loan amounts ranging from $3,000 to $25,000.

When a personal loan could be better

Personal loans, on the other hand, tend to be more suited to larger expenses paid off over a longer time frame. Consider some of life's hurdles that get in the way, such as medical bills or car repairs or more significant planned expenses like cars, weddings, holidays or home renovations. 

In addition to allowing for larger loan limits, personal loans can also provide:

• Loan security and more thorough assessments when applying
• Flexible repayments - you can actually pay off your loan sooner if you want to, saving on interest in the process
• Longer loan terms that allow for more manageable repayments

Jacaranda Finance Personal Loans 

If you do decide a personal loan is the right method of borrowing for you, consider Jacaranda Finance as your lender of choice. Our fast online personal loans are available from $3,000 to $25,000, with loan terms up to 36 months. 

You can apply online or from our Better Credit in as little as 5-12 minutes¹, with same-day outcomes² available. What’s more, you can check if you qualify before you apply without impacting your credit score at all.

Other key features available with Jacaranda include:

• Flexible repayments at no extra cost
• Fixed interest rates to help you budget
• Free credit score checks in the Better Credit
• The potential to improve your credit score with timely repayments thanks to Comprehensive Credit Reporting (CCR)⁵

Apply with Jacaranda today!