Buy Now, Pay Later & Short-Term Loans
Weigh up buy now, pay later against other loans for NSW Year 12 Mathematics Standard 1 (NESA outcome MST-12-S1-03). There are many ways to pay for something you cannot afford straight away, and each one has a different total cost once repayments and fees are added up.
You will work out what buy now, pay later plans, short-term loans and long-term loans really cost, finding the total amount paid including establishment fees, monthly fees and late fees, and comparing it with the cash price — so you can make smart choices before buying a phone, a laptop or a car.
Theory
Buy now, pay later and short-term loans are part of the Depreciation and loans topic in Year 12 Standard 1 (NSW). To compare ways of paying, work out the total amount paid under each option — all repayments plus any fees — and compare it with the cash price. This guide covers BNPL instalments, store finance, short-term loan fees and short-term versus long-term loans.
The total repaid on a loan is each repayment multiplied by the number of repayments. The extra cost (interest and fees) is the total paid minus the cash price or the amount borrowed.
Buy now, pay later (BNPL) splits the price into equal instalments, often \(4\). It is interest-free if every payment is on time, but late fees apply and it is easy to overspend. Loans can also have an establishment fee (paid once) and an account-keeping fee (paid every month).
A short-term loan has higher repayments but usually costs less in total; a long-term loan has smaller repayments but costs more, because interest is paid for longer. As regular repayments are made, the amount still owing falls each period until it reaches \(\$0\). Paying cash avoids all interest and fees. In this Year 12 Standard 1 (NSW) topic you calculate and compare these costs.
Every comparison starts with the total amount paid:
Add every fee: the establishment fee once, the monthly fee every month, and a late fee for each missed payment:
Working backwards, the number of repayments is:
How to compare ways of paying
- Count the repayments: for example \(2\) years of monthly payments is \(2\times12=24\) repayments.
- Find the total paid for each option: repayment \(\times\) number of repayments, plus every fee.
- Find the extra cost: total paid \(-\) cash price (or amount borrowed).
- Compare the totals and state which option is cheaper and by how much.
Divide the price by \(4\), then add the fee to the total.
| \(\text{Each instalment}\) | \(=\) | \(480 \div 4 = 120\) |
| \(\text{Total}\) | \(=\) | \(120 \times 4 + 10\) |
| \(\) | \(=\) | \(480 + 10 = 490\) |
Each instalment is \(\$120\) and the total paid is \(\$490\).
Find the total paid, then subtract the cash price.
| \(\text{Total paid}\) | \(=\) | \(140 \times 12\) |
| \(\) | \(=\) | \(1680\) |
| \(\text{Extra}\) | \(=\) | \(1680 - 1500\) |
| \(\) | \(=\) | \(180\) |
You pay \(\$180\) more than the cash price.
Add the one-off fee to the monthly fees, then add the amount borrowed.
| \(\text{Fees}\) | \(=\) | \(200 + 40 \times 6\) |
| \(\) | \(=\) | \(200 + 240 = 440\) |
| \(\text{Total repaid}\) | \(=\) | \(1000 + 440 = 1440\) |
| \(\text{Each month}\) | \(=\) | \(1440 \div 6 = 240\) |
The fees are \(\$440\), Sam repays \(\$1440\) in total, which is \(\$240\) a month.
Work out the total repaid for each loan, then compare.
| \(\text{Short-term}\) | \(=\) | \(545 \times 12 = 6540\) |
| \(\text{Long-term}\) | \(=\) | \(290 \times 24 = 6960\) |
| \(\text{Difference}\) | \(=\) | \(6960 - 6540 = 420\) |
The short-term loan costs \(\$420\) less, although its repayments are higher (\(\$545\) against \(\$290\) a month).
Common pitfalls
Frequently asked questions
How does buy now pay later work?
Buy now, pay later splits the price into equal instalments, often 4 payments a fortnight apart. There is no interest if every payment is made on time, but a late fee is charged for each missed payment.
How do you calculate the total cost of a loan?
Multiply each repayment by the number of repayments, then add any fees that are not already included. The extra cost of the loan is this total minus the cash price or the amount borrowed.
Is a short-term loan cheaper than a long-term loan?
Usually yes. A short-term loan has higher repayments but costs less in total, because interest is paid for a shorter time. For example, $545 a month for 12 months is $6540, while $290 a month for 24 months is $6960.
What is an establishment fee?
An establishment fee is a one-off fee charged when a loan is set up. It is paid once, unlike an account-keeping fee which is charged every month.
Why is a smaller repayment not always cheaper?
Smaller repayments usually mean more repayments over a longer time, so the total paid is often higher. Always compare the total amount paid, not the size of each repayment.