Buy today, pay tomorrow. It sounds attractive, and it can be very convenient. But new research sheds light on the potential traps.
‘Buy now, pay later’ (BNPL) is the deferred payment option that lets you take purchases home today and pay them off over a series of instalments.
According to research by RateCity, Australians are signing up in droves to platforms like Afterpay, zipPay and Openpay, with users wanting to purchase something now, but delaying the pain of paying for it. And that’s where the trouble can lie.
Money troubles for 1 in 3 users
Interest isn’t usually charged on BNPL purchases, so if you can handle the repayments and stay within budget for purchases, it can be a handy option.
Late fees apply if you miss a payment, and the danger zone can occur when users have a number of purchases on the go across several platforms. That can make it a lot harder to keep track of repayments, potentially leading to late fines and, in some cases, being slugged by overdrawn fees.
RateCity found that close to one in three BNPL users are getting themselves into money troubles, with some unable to pay other bills as a result. A separate report from Mozo found 69% of Aussies with a BNPL account are financially stressed by their payments schedule.
BNPL takes off among Millennials
While BNPL is attracting lots of interest, it’s not quite the game-changer that it may seem to be. A study by industry super fund-owned ME Bank found credit cards are still the main consumer payment method after cash.
However, it’s among Millennials that BNPL has taken off. A 2018 investigation by money watchdog ASIC, found 60% of BNPL users are aged 18 to 34 years old, and plenty of these shoppers are finding it easy to fall into the trap of overspending.
As ASIC cautioned, platform providers “use behavioural techniques (like the way the purchase price is framed) that can influence consumers to make a purchase without careful consideration of the costs”. The key here is to look at the total price rather than focusing on how much you’ll pay in regular instalments.
Even among under-35s who can handle the cost, BNPL can have unexpected consequences. Heavy use of buy now, pay later services can be a red flag for a lender, potentially reducing the amount a bank will lend for a first home. It’s definitely something for first home owners to be aware of.
Tips for using BNPL
BNPL is here to stay – and it can be very handy. If you’re thinking about signing up to a platform, be sure to read the terms and conditions carefully. Keep things simple by only dealing with one platform, and set strict spending limits, giving yourself breathing space before giving in to an impulse buy. Ideally, stick to a debit card when shopping. It’s hard to get into too much trouble when you’re using your own money.
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