Shoppers shouldn’t be lured in by the what seems like free money, with Chartered Accountants Australia New Zealand thought leadership & research leader Geraldine Magarey saying there were four specific pitfalls to watch out for:
1. Impact on credit rating
If buying a big ticket item like a house or a car is on your horizon, forget about using buy-now-pay-later.
“The issue is that these services are classified as a line of credit, meaning the way you use them can impact on your future borrowing capacity,” Magarey said.
“Lenders will take your Afterpay purchases into consideration alongside your other expenses, when deciding if they should give you a loan or not.”
Besides, less spending now means faster saving for the lump sum you need for that goal purchase.
The delayed financial hit leads to buy-now-pay-later shoppers to spend more than they otherwise would.
“It is clear that their instantaneous nature can encourage bad spending patterns, leading consumers to overspend and deal with the financial pain later,” said Magarey.
“According to ASIC’s 2018 Review of Buy Now Pay Later Arrangements, 55 per cent of users believed that they were spending more on some items than before they started using such schemes.”
3. Late fees and repayment budgeting
While buy-now-pay-later services typically do not charge interest on the money owed, fees for overdue instalments are where they sting shoppers who fall behind.
“With Afterpay, customers who miss all instalments are subject to a total late fee of $68 per transaction,” said Magarey.
“With Zip Pay, a late fee of $5 applies if no repayments have been made for more than 21 days – and with Laybuy, customers who fail to pay within 24 hours of the due date are charged $10.00.”
This is why it’s critical for users to have money set aside to pay off the instalments on time.
“If you are using Afterpay, Zip Pay or Laybuy for multiple purchases, it is imperative you account for future repayments in your budget, so you don’t get stung with multiple late fees.”
4. Buying items you can’t afford
It sounds obvious, but when services come along that seem like giving away free money, caution is needed.
“It’s easy for consumers to think they can afford things when they actually can’t, and just because a lender will give you the money does not mean you should take it,” said Magarey.
“Most of these buy-now-pay-later schemes are loosely regulated, meaning the provider doesn’t have to check you can afford to make repayments before they sign off on your loan.”
One-in-six Australians have been plunged into financial hardship after using pay-later services, according to Magarey.
“Perhaps the least surprising advice that an accountant could give [is] if you can’t afford it, don’t buy it.”