Pay now, regret later?

15 February 2021

Mulcahy & Co Associate Financial Planner Tamara Vawdrey talks about the dangers and benefits of "Buy Now, Pay Later" programs, and how they should be approached.

“Buy Now, Pay Later” has become more popular over the past few years with some of the suppliers being Afterpay and ZipPay.

Consumers are able to make a purchase with no upfront payment required and no interest charged. The upside to Afterpay is purchasing some goods or a service and paying it off over 4 fortnightly payments, the downside being when a payment is missed the consumer is charged a $10 late fee.

Where the waters get murky is that Buy Now, Pay Later schemes are not regulated under the Credit Act like credit cards or other loans in Australia are so they are being offered to consumers who can’t necessarily afford to pay back the debt and living

outside of their financial capability.

Afterpay transactions in Australia increased from 16.8 million in the 2017-2018 financial year to a whopping 32 million in the 2018-2019 financial year which an increase of 90% in just one year. In the 2019 financial year Afterpay charged their customers $46 million in late fees which is a red flag that they aren’t complying with important consumer protections like responsible lending.

Buy Now, Pay Later schemes can also have an impact on individuals wanting to apply for home loans because in the banks eyes by having an open Afterpay account with a credit limit of $2,000 (even if there is nothing owning on the account) it can affect the amount they wish to borrow.

In saying that it’s not all doom and gloom for Buy Now, Pay Later schemes, if you repay all your purchases on time and in line with the terms and conditions then they can be used as a cashflow tool. It is when consumers start using them for ‘spur of the moment’ or for ‘impulse buys’. Many times the purchase is not really needed, only wanted. Try to restrain from using Buy Now, Pay Later schemes for impulse buys and save up for that wanted item and give yourself the time to consider is it really a need not just a want.

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