Buy Now, Pay Later (BNPL) services allow consumers to spread purchases across smaller instalments, often without interest or the formal application process associated with a credit card or personal loan. Used carefully, BNPL can assist with cash flow. However, as bankruptcy trustees, we are increasingly seeing BNPL debts in personal insolvency matters.
The concern is not limited to people who have only small debts. BNPL often appears alongside mortgages, personal loans, credit cards, tax debts, business liabilities and ordinary household expenses. It may not be the main cause of financial distress, but its use can be a warning sign that a person is relying on new credit to manage commitments they can no longer comfortably afford.
A BNPL balance may look minor compared with a person’s other liabilities. However, when finances are already stretched, accumulating instalments can become the straw that breaks the camel’s back – the final commitment that causes payments to be missed, accounts to become overdrawn or further credit to be used.
Small Repayments, Larger Risk
Part of BNPL’s appeal is its speed and convenience. A $25 repayment here and $40 there may not seem concerning, but across several accounts, purchases, and repayment dates, the total can quickly add up. What appears manageable at checkout can become overwhelming by the end of the month.
Historically, some providers did not conduct the same credit checks or income assessments required by traditional lenders. This made it easier for consumers to access multiple facilities without properly assessing whether they could afford the combined repayments.
A Warning Sign Across All Debt Levels
Financial distress is not defined only by the total amount owed. A person may have relatively modest debts and no capacity to repay them. Another person may have a good income or own assets, but also carry a mortgage, car finance, tax debt, credit cards or business liabilities that place them under severe cash-flow pressure.
In either case, repeated use of BNPL can reveal that ordinary income is no longer sufficient to meet ordinary commitments. A person may use it to preserve cash for other repayments, bridge the period until payday or delay facing an existing shortfall. The BNPL debt itself may be small, but the behaviour can indicate a much larger financial problem.
BNPL was once mainly associated with discretionary purchases such as clothing, electronics and gifts. It is now also being used for groceries, petrol, utility bills, school expenses and medical costs. When future income is already committed to earlier expenses, each pay cycle begins behind and the person may use further credit to meet the next round of costs.
The Tipping Point, Not Always the Main Cause
BNPL is rarely the largest liability in an insolvency. Its significance is that it can add pressure to a position that is already close to breaking point. One more repayment may cause a direct debit to fail, a credit card payment to be missed, or an essential expense to be deferred.
Once that happens, the effect can spread quickly. Missed payments may lead to fees, collection activity and creditor pressure. The person may then borrow again, move money between accounts or prioritise one creditor over another. BNPL can, therefore, be the final straw that turns a difficult financial position into an unmanageable one.
Australian Financial Security Authority (AFSA) data has shown that nearly half of new debtors had BNPL liabilities, with the proportion higher among debtors aged 29 and under. This does not mean BNPL alone caused their insolvency. It shows that BNPL has become a common feature and potential warning sign of personal financial distress.
New Laws Help, but They Are Not a Cure
Reforms passed in December 2024 commenced on 10 June 2025. BNPL providers are now generally required to hold an Australian credit licence and comply with modified responsible lending obligations under the national credit framework.
The reforms are a positive step, but regulation cannot remove all risk. A person under financial pressure may still turn to credit despite the longer-term consequences, particularly when existing income is already committed to other debts and living expenses.
Warning Signs
BNPL should not be dismissed merely because the balance is small. Warning signs include using it for essentials, operating several accounts or purchases at once, being unclear about the total amount owing, missing repayments, using one form of credit to pay another, or regularly having no money left before payday. Avoiding creditor contact, shifting repayment dates or feeling trapped are also signs that advice should be sought.
When It Is Time to Seek Help
The best time to seek help is before BNPL or another new commitment becomes the final straw. Professional advice should consider the person’s entire position, not just the BNPL balance, including income, assets, secured and unsecured debts, living costs and whether obligations can be paid when they fall due.
Bankruptcy is a serious legal step that can affect a person’s assets, income, credit file, ability to act as a company director and future borrowing capacity. For some people, however, it can provide a necessary legal circuit breaker by stopping creditor pressure and consolidating unmanageable debts into a single formal process.
Bankruptcy is not the only option. Depending on the circumstances, a person may be able to negotiate with creditors, enter a hardship arrangement, propose a debt agreement or personal insolvency agreement, or take other steps. Generally, the earlier the advice is obtained, the more options will be available.
At DVT Mcleods, our registered trustees in bankruptcy help individuals understand their formal options when debts have become unmanageable. Our role is not to judge, but to examine the whole financial picture and explain clearly what bankruptcy does and does not mean so that people can make an informed decision.
The key question is not simply how much BNPL debt a person has. It is what the use and accumulation of that debt says about their overall financial position. Even a relatively small BNPL balance can be an important warning sign and, where other commitments are already overwhelming, the straw that breaks the camel’s back.
If you are struggling with debt and would like to discuss your situation, please contact one of our trustees in bankruptcy, Anthony Bagala or Alan Ma, at DVT Mcleods on (02) 9633 3333 or by email at abagala@dvtmcleods.com.au.
