Zip Money: What Is It and How Does It Work?

Zip Money is a BNPL service offered by Zip Co that lets you borrow between $1,000 to $5,000 for online and in-store purchases, with the exact credit limit depending on your eligibility and how long you have been using the service. Given the higher amount of credit borrowed, you need to wait until your credit limit is confirmed before making purchases. You have the flexibility to choose your repayment amount and frequency as long as you pay a minimum of $10 every week. Also, you won’t be charged interest for a minimum of three months and a maximum of 36 months based on where you shop. 

If you haven’t repaid the amount in full before the interest-free period ends, you’ll be charged interest on the remaining balance - the present rate being 19.9 per cent. Using Zip Money also involves paying a $7.95 monthly service charge, which is charged for as long as your debt is outstanding. In addition, you may have to pay an establishment fee of up to $99 which varies with your borrowing limit.

Once you have installed the Zip app on your phone and set up your account, you can use the Zip Money service to pay for both online and in-store purchases. However, unlike the Zip Pay service, you cannot “tap to pay” when using the Zip Money service.

• In retail stores:
  To pay for in-store purchases with Zip Money, you need to open the Zip app and generate a barcode for the amount you want to spend and then scan this barcode at checkout.
  
  
• Online:
  If the online merchant offers the “Pay with Zip” option, you can complete the purchase by logging into the Zip service. Alternatively, you can request a virtual card for your Zip account and use that to make payments online.

Zip may carry out a credit check on you before approving your account to confirm whether you can make the repayments comfortably. This may leave a hard credit enquiry on your credit report but a single credit check won’t necessarily hurt your credit score. However, if you are making several credit applications that show up on your file too close to each other, it could give lenders the impression you are credit hungry, which may lead them to reject new credit applications by you in future. Such rejections show up on your credit file and pull down your credit score. In general, using Zip Money to pay for your purchases isn’t likely to affect your credit score if you make your repayments on time. However, if you fall behind on your repayments, you could be hit by late fees and the default may be reported to the credit bureaus in some cases.

Unlike Zip, many BNPL companies don’t carry out credit checks before approving new users. However, this may all be changing soon, as Australia’s Federal Government takes steps to increase regulation of the BNPL sector. Recognising that BNPL looks like credit and acts like credit, the government has announced that it must also be regulated like credit.

By the end of 2023, it is expected that BNPL services will be classified as credit products under the Credit Act, and will need to comply with Responsible Lending Obligations and hold Australian Credit Licences. Signing up for any BNPL service in future could thus necessitate a credit check, be it Zip or Afterpay.

Ironically, the most significant advantage and disadvantage of Buy Now, Pay Later products lies in their ability to allow you to spend money you don’t have yet. If you overcommit, these BNPL platforms can get expensive quickly. Therefore, before you apply for Zip Money, it’s important to assess if this type of credit is the right fit for you and if you can make timely repayments, avoid paying unnecessary fees, and have the funds to cover any additional costs. 

If you’re inclined to sign up for Zip Money, ensure that you carefully read the terms and conditions and understand the commitment you’re making. To make sure you don’t impact your financial health negatively, you should ensure that you make all your repayments on time and finalise them before the interest-free period ends.