Personal Loan vs Buy Now Pay Later: What Should You Compare?

You need to pay for something, but covering the full cost upfront would put pressure on your budget. Should you consider a personal loan or use a buy now, pay later service?

At Sunshine Loans, we believe the decision should involve more than whether one option is advertised as “interest-free”. You should compare the total cost, repayment schedule, borrowing period, flexibility and what could happen if you miss a payment.

Neither a personal loan nor buy now, pay later is automatically the better option.

A buy now, pay later plan may suit a particular purchase that you can repay over a short period. A personal loan may offer more flexibility for a larger or unexpected personal expense, although interest and fees may apply.

Before using either option, make sure the repayments fit your budget without affecting essential expenses.

Personal Loan vs Buy Now, Pay Later at a Glance

A personal loan and a buy now, pay later arrangement both allow you to receive something now and pay for it over time. However, they work differently.

In Australia, businesses engaging in credit activities involving buy now, pay later contracts have been required to hold an Australian Credit Licence since 10 June 2025.

Most buy now, pay later contracts fall within the low-cost credit contract category. Qualifying providers may elect to comply with modified responsible lending obligations under the applicable regime.

What Is a Personal Loan?

A personal loan allows you to borrow a set amount and repay it, together with any applicable interest and fees, over an agreed period.

Depending on the product, a personal loan may be available for expenses such as:

• A car repair.
• Medical treatment.
• Travel.
• Home improvements.
• Another approved personal expense.

Some loans can only be used for specified purposes, so you should always check the contract before applying.

Mainstream personal loans commonly run for between one and seven years. Shorter-term regulated credit products are also available.

A longer term may reduce the amount of each repayment, but it can increase the total amount of interest you pay over the life of the loan.

Personal loans can also be secured or unsecured.

Secured Personal Loan

You provide an asset, such as a vehicle, as security.

If you do not meet your obligations, the lender may be able to take and sell that asset, subject to the applicable contract and law.

Unsecured Personal Loan

You do not provide an asset as security.

You are still responsible for repaying the debt, and recovery action may be taken if repayments are not made.

What Is Buy Now, Pay Later?

Buy now, pay later allows you to obtain goods or services immediately and repay the provider in instalments.

You will usually select buy now, pay later when paying online or in a participating store. The provider pays the merchant, and you repay the provider according to the agreed schedule.

Many buy now, pay later plans do not charge interest. However, “interest-free” does not necessarily mean cost-free.

Depending on the service, you may encounter:

• Late-payment fees.
• Monthly account fees.
• Payment-processing fees.
• Establishment fees.
• Bank fees if a direct debit causes your account to become overdrawn.

Moneysmart recommends looking at all applicable fees rather than relying only on an “interest-free” description.

Eight Factors to Compare Before Choosing a Personal Loan or Buy Now, Pay Later

1. The Total Amount You Will Repay

We recommend starting with the overall dollar cost rather than looking only at the advertised interest rate or the size of the first repayment.

For a personal loan, consider:

• The interest rate.
• The comparison rate, when one is provided.
• Establishment or application fees.
• Administration fees.
• Default or missed-payment fees.
• Early repayment fees.
• The total amount payable over the loan term.

A comparison rate combines the interest rate with most applicable fees to provide a broader indication of the cost of a loan.

However, comparison rates should be compared using the same loan amount and term. They may also exclude some fees and charges.

For buy now, pay later, check whether you could pay:

• Account or membership fees.
• Transaction or payment fees.
• Late fees.
• Additional fees if several instalments are missed.
• Bank dishonour or overdraft fees.

A buy now, pay later arrangement that has no consumer fees and is repaid on time may cost less than an interest-bearing personal loan.

However, fees can add up if you miss repayments or have several buy now, pay later arrangements running at the same time.

2. What You Need to Pay For

Buy now, pay later is generally designed for purchases from participating retailers and service providers.

It may be useful when the item or service you need is offered by a participating merchant. It will not necessarily help when an expense needs to be paid by bank transfer or to a provider that does not accept your buy now, pay later service.

A personal loan generally gives you funds that can be used for an approved personal purpose.

Depending on the lender and contract, this can provide more flexibility if you need to pay several providers or cover an expense that cannot be paid through buy now, pay later.

Always check the permitted loan purposes before applying.

Personal credit should not be used for:

• Business expenses.
• Gambling.
• Speculative investments.
• Illegal activities.

3. The Amount and Borrowing Period

Consider how much you genuinely need and how quickly you can comfortably repay it.

Buy now, pay later is commonly associated with purchases repaid over a relatively short schedule.

Some providers offer larger limits or longer repayment plans, so you should check the particular contract rather than assuming every service works in the same way.

Personal loans may offer larger amounts and longer repayment terms.

A longer term can make individual repayments smaller, but it can also increase the total cost of borrowing.

Do not choose a longer term only because the scheduled repayment appears easier to manage. Compare both the regular repayment and the total amount payable.

4. Repayment Timing

Buy now, pay later repayments may be due weekly, fortnightly or monthly. Some arrangements require the first payment when you make the purchase.

Personal loan repayments may also be weekly, fortnightly or monthly, depending on the contract.

Compare those repayment dates with your actual income and commitments.

Ask yourself:

• Will the payment leave your account before or after payday?
• Do you have periods when your income is lower or irregular?
• Are other direct debits due at around the same time?
• Could the repayments affect your ability to pay for rent, food, utilities, transport or medical costs?

A repayment schedule is only manageable when it fits your real cash flow, not just an average month.

5. Your Existing Commitments

One risk with buy now, pay later is that dividing a purchase into instalments can make each individual commitment appear relatively small.

Several small arrangements can still add up.

For example, four separate $30 instalments create a combined $120 repayment commitment.

You could also have a personal loan, credit card, phone plan and household bills falling due during the same period.

Before taking on another credit commitment, list:

• Every amount you currently owe.
• The repayment due on each account.
• The payment dates.
• Your essential living expenses.
• The money you will have left after meeting those commitments.

We recommend looking at the combined effect of all your repayments rather than considering a new purchase in isolation.

6. Credit Checks and Credit Reporting

Applying for credit can affect your credit history.

A buy now, pay later application may result in a credit check. Applications, arrangements and late or missed payments may also appear on your credit report, depending on the circumstances and provider.

Provider practices differ, so check how a particular service handles credit inquiries and repayment information.

Personal loan providers may also consider your income, expenses, existing debts and credit information when assessing an application.

Making several credit applications within a short period may affect how future credit providers view your credit history.

Rather than applying to several providers simply to find out who may approve you, research the eligibility criteria and costs before deciding whether to submit an application.

7. What Happens if You Miss a Payment

Read the contract carefully so that you understand what can happen if you miss a repayment.

Depending on the product, consequences can include:

• Late or default fees.
• Restrictions on further purchases.
• Collection activity.
• Information being reported to a credit reporting body.
• Legal recovery action.
• Bank fees arising from an unsuccessful direct debit.

You should also check the provider’s financial hardship process.

If your circumstances change and you are struggling to make a repayment, contact your provider as early as possible.

Seeking help early may give you more options than waiting until several payments have already been missed.

8. Early Repayment and Flexibility

Your circumstances may change before the agreed repayment period ends.

Check whether you can repay the balance early and whether doing so involves an early repayment fee.

You may also want to consider:

• Whether extra repayments are allowed.
• Whether payment dates can be changed.
• Whether repayment frequency can be adjusted.
• Whether the account remains open after you repay the balance.
• Whether an unused buy now, pay later account attracts ongoing fees.
• How easily you can close the account.

A product with a low advertised cost may still be unsuitable if the terms do not match the way you intend to repay it.

When Might Buy Now, Pay Later Be Worth Considering?

Buy now, pay later may be worth comparing when:

• You are paying for one specific purchase.
• The merchant accepts the service you are considering.
• You understand the complete fee structure.
• You can meet every instalment from your existing income.
• Repayments will not affect essential expenses.
• You are not already managing several overlapping arrangements.
• You do not need funds to pay other providers or expenses.

For example, imagine you need to replace a necessary household item and the retailer offers a short buy now, pay later arrangement with no consumer fees.

You check your upcoming expenses and confirm that every instalment can be paid comfortably from your existing budget.

In those circumstances, buy now, pay later could cost less than an interest-bearing personal loan.

That is only an example. Whether any credit product is appropriate depends on its terms and your individual circumstances.

When Might a Personal Loan Be Worth Comparing?

A personal loan may be worth considering when:

• You have a specific, one-off personal expense.
• The provider you need to pay does not accept buy now, pay later.
• You need to pay more than one service provider.
• You want a clearly defined loan amount and end date.
• You can comfortably afford the repayments.
• You understand the interest, fees and total amount payable.
• The expense cannot reasonably be delayed or covered another way.

For example, you may have an unexpected car repair that needs to be paid to a mechanic who does not accept buy now, pay later.

A personal loan could provide more flexibility in that situation, but you should still compare the total cost against alternatives such as a payment arrangement with the mechanic.

We do not recommend treating a personal loan as additional income or relying on borrowing to cover ordinary ongoing living expenses.

How Our Sunshine Loans Product Compares

We offer unsecured Medium Amount Credit Contracts rather than a buy now, pay later service, wage advance, traditional payday loan or line of credit.

Our product is intended for eligible customers dealing with an infrequent, one-off or unexpected personal expense that cannot reasonably be covered from normal disposable income.

It is not intended to fund regular ongoing household expenses or business costs.

Our current product features include:

You can review our current loan costs and terms before deciding whether our product may be appropriate for you.

To meet our basic eligibility requirements, you generally need to:

• Be at least 18 years old.
• Have regular take-home income of at least $750 per week or $1,500 per fortnight.
• Have legal and verifiable income.
• Have income that is not solely from government benefits.
• Be able to afford the repayments without experiencing financial hardship.
• Use the loan for a personal rather than business purpose.

You can review our loan eligibility requirements for further information.

Meeting our basic eligibility requirements does not guarantee that we will approve your application.

We assess every application individually and remain subject to our responsible lending obligations.

Sunshine Loans Pty Ltd holds Australian Credit Licence number 390556.

When Neither Option May Be Appropriate

Neither a personal loan nor buy now, pay later is likely to be appropriate if making the repayments would leave you unable to afford essential expenses.

Before borrowing, consider whether you could:

• Use savings without reducing the money you need for essentials.
• Ask the retailer or service provider about a payment plan.
• Delay a non-essential purchase.
• Compare prices or choose a lower-cost alternative.
• Check whether you qualify for a No Interest Loan for an eligible essential item or service.
• Ask a utility company or existing credit provider about hardship assistance.
• Review your household budget.
• Speak with a free financial counsellor.

Moneysmart explains that eligible Australians may be able to access a No Interest Loan for certain essential goods and services. These loans have no interest, fees or charges.

If you are already struggling with repayments or using one form of credit to repay another, taking on another debt could make your financial position more difficult.

Contact your existing providers as early as possible and consider seeking independent financial counselling.

A Practical Checklist Before You Decide

Before choosing a personal loan or buy now, pay later, ask yourself:

• What is the exact expense?
• How much do I genuinely need?
• What will I repay in total?
• Are there interest charges, establishment fees or account fees?
• What happens if a payment is late?
• When will each repayment leave my account?
• Can I still afford essential expenses after making the repayment?
• Do I have other loans or buy now, pay later arrangements running at the same time?
• Can I repay early without a penalty?
• Is there a lower-cost or non-credit alternative?

Do not proceed until you understand the complete contract rather than focusing only on the first repayment.

Frequently Asked Questions

Is Buy Now, Pay Later Cheaper Than a Personal Loan?

It can be.

A buy now, pay later arrangement that charges no consumer fees and is repaid on time may cost less than an interest-bearing personal loan.

However, account fees, processing fees and late fees can increase the cost. Compare the total amount you will pay under both options before deciding.

Does Buy Now, Pay Later Affect Your Credit Score?

It can.

Applying for buy now, pay later may trigger a credit check, and information about applications, arrangements or missed payments may appear on your credit report, depending on the provider and circumstances.

Check the credit-reporting terms of the service you are considering.

Is Buy Now, Pay Later Considered Credit in Australia?

Yes.

Since 10 June 2025, buy now, pay later contracts have been brought within Australia’s consumer credit regulatory framework, and businesses engaging in relevant credit activities are required to hold an Australian Credit Licence.

Most buy now, pay later contracts fall within the low-cost credit contract category.

Can I Take Out a Personal Loan to Repay Buy Now, Pay Later Debt?

Whether this is possible depends on the lender, the permitted purpose of the loan and your circumstances.

However, replacing one debt with another does not make the debt disappear. A longer loan term could also increase the overall amount you repay.

If you are having difficulty managing several debts, consider independent financial counselling before taking on additional credit.

Can I Repay My Sunshine Loan Early?

Yes.

We allow you to repay your loan early without an early repayment penalty.

Before making your final payment, confirm the current payout amount with us so that you know the exact balance that remains.

You can also read our frequently asked questions for more information about our loans.

What Should I Compare First?

Start with affordability and the total amount you will repay.

A product is not suitable simply because the first instalment is small, the application is convenient or the repayments are spread over time.

Compare the Complete Cost Before Borrowing

Whether a personal loan or buy now, pay later is more appropriate depends on the expense, the amount you need, the repayment period and your ability to manage the payments alongside your existing commitments.

Buy now, pay later may suit a specific purchase you can comfortably repay over a short period, particularly when no consumer fees apply.

A personal loan may offer greater flexibility for a one-off expense, but interest and establishment costs can apply.

Before deciding:

• Review the terms.
• Consider lower-cost and non-credit alternatives.
• Calculate the total amount repayable.
• Make sure the repayments will not create financial hardship.

You can review our loan costs, eligibility requirements and FAQs to understand how our product works before deciding whether borrowing may be appropriate for your circumstances.

Applications are subject to eligibility, individual assessment and approval. Borrow only what you need and can afford to repay.

The information provided in this blog is for general informational purposes only and does not constitute financial advice. It is not tailored to the specific circumstances of any individual. Before acting on the information, you should consider whether it is appropriate for you, having regard to your objectives, financial situation and needs.