Shoppers warned of the dangers of buy now, pay later schemes
Reverse lay-buy is booming in Australia as millions of people turn to buy now, pay later options and shy away from credit cards. But the payment programs have major spending traps.
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Reverse lay-by is booming in Australia as millions of people turn to buy now, pay later options and shy away from credit cards.
New schemes continue to hit the market, allowing customers to get their goods now and pay them off in bite-sized chunks later.
Afterpay, Zip Pay, Klarna, Splitit, Humm and Latitude Pay are among popular payment programs used by shoppers either online or in store as many ditch using plastic.
Latest Reserve Bank of Australia figures show consumers have wiped a whopping $4.2 billion off the nation’s credit card debt bill since the pandemic hit.
Credit card debt accruing interest has fallen to $22.8 billion, the lowest level in 15 years and during this time 400,000 plastic accounts have been shut down.
Ashlee Kannangara, 37, mum of two from Turramurra in Sydney’s Upper North Shore, above, says, “If I can Afterpay it, I buy it”.
“It’s convenient, it’s like lay-by but you get the goods straight away, I don’t like taking my kids to the shops so I use it online,” she says. “I’ve only been hit by fees once and I like to hide purchases from my husband this way.”
She says she sometimes pays off four separate purchases at once including for clothes and makeup and has the direct debits linked to her debit card.
BNPL giant Afterpay has more than 3.3 million active customers in Australia and New Zealand – an 18 per cent increase in 12 months.
The scheme allows users to pay off items in four equal fortnightly repayments and the average purchase amount is $150.
Afterpay global head of operations Melissa Bull says it caps outstanding amounts owing at any one time to $2000 and suspends a user if a single payment was late.
“Afterpay sends out reminders to its customers of an upcoming payment (four days’ notice) and has capped late fees to a maximum total of $68 or 25 per cent of the purchase price, whichever is lower,” she says.
But she says they do not report a customer’s behaviour to credit reporting agencies, so it cannot negatively affect your credit rating.
Zip Co has more than 2.1 million customers and those using Zip Pay can make purchases under $1000.
Users must make minimum monthly repayments of $40. However, a $6 monthly account-keeping fee applies – this is waived if there is no balance owing at the beginning of the month.
Zip co-founder Peter Gray labelled credit cards “expensive and unfair”.
“But the biggest difference is that it’s interest free, and balances are repaid in months not years,” Mr Gray says.
He says only one in every 100 Zip customers is late with meeting payments each month.
Unlike credit cards, BNPL schemes usually don’t charge customers interest. Instead they hit them with fees if they don’t meet the strict payment criteria.
Financial comparison website RateCity’s spokesperson, Sally Tindall, warns people to understand the terms and conditions before rushing into using these schemes.
“Each one has its own set of payment terms, conditions and late fees which is often buried in hard-to-find places,” she says.
“If you start assuming how it works it could easily trip you up.”
She also warns it can result in customers being forced into a false economy.
“If you’re prone to overspending you could end up like a kid in a candy shop not knowing when to stop,” Ms Tindall says.
She says consumers should also be warned that missing repayments on these schemes – while they won’t impact your credit score – could be used by lenders when applying for credit applications, for instance a home loan application.
Originally published as Shoppers warned of the dangers of buy now, pay later schemes