Buy Now Pay Later spending surges during lockdown as Australians call for debt help

Australians have taken on a worrying level of debt with providers like Afterpay during the lockdown, as tens of thousands of people reach out for financial help and experts warn the worst is yet to come.

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Exclusive: Money spent by Australians on Buy Now, Pay Later schemes has doubled during the COVID-19 lockdown plunging consumers deeper into debt.

As people reach out for financial help, anonymised transaction data obtained by News Corp from 7000 bank accounts linked to comparison site Finder’s mobile app has revealed more than $1.19 million was spent with providers like Afterpay and Zip in May. 

The jaw-dropping figure is double what was spent in February and a far cry when compared to one year ago when Australians splashed about $345,000.

Total spend through BNPL providers ballooned during the course of the pandemic, climbing from about $560,000 in February against a backdrop of growing unemployment and financial hardship.

It has also been identified as a major debt problem in a nationwide survey that found almost one in two financial counsellors reported that at least half of their clients owed money to BNPL providers, according to the National Debt Helpline.

Buy Now Pay Later spending has ballooned over the course of the coronavirus pandemic. Picture: AAP

The Helpline received more than 40,000 calls for advice from March to May across Australia, with 10,273 in NSW, 4889 in Victoria, 7786 in Queensland and 4961 in South Australia.

National Debt Helpline Director of Community Engagement Maura Angle said the organisation was “always concerned” about these providers and had urged people to “avoid using them as much as possible”.

Ms Angle said the Finder figures were “scary”, and while call volumes to the Helpline were about on par with last year, the situation was likely to worsen.

“That’s to be expected because it takes a few months for people to start getting into trouble with Buy Now, Pay Later,” she said.

She said consumers were at risk of falling into this debt trap as they may feel their cashflow was shored up due to increased welfare payments and lenders’ offering deferred payments.

Ms Angle said these schemes were too easy to access and should be regulated like other credit providers.

The National Debt Helpline has received more than 40,000 calls for financial help since March. Picture: Supplied

BNPL providers have been subject to intense criticism as they are not regulated under the National Credit Act. It means they may not have to comply with Responsible Lending Laws like other banks and credit unions do to establish if a customer can service a debt.

However, some reserve the right to conduct credit checks and report to credit agencies.

“Although they say they don’t charge for credit, it still has the same effect especially if someone is using a credit card to pay them off,” she said.

While they do not charge interest, she said they instead sting customers with other fees.

Afterpay customers are required to pay for their purchase over four instalments due every fortnight. If the payment isn’t met a $10 late fee applies.

They face a further $7 charge if the payment remains unpaid seven days after the due date. For each order of $40 or more, late fees are capped at 25 per cent of the original order or $68, whichever is less.

Afterpay says it reserves the right to conduct a credit check, but the company has rejected calls for it to carry them out in a submission to the Senate Select Committee on Financial Technology and Regulatory Technology.

“Credit checks are a lagging customer indicator, are unhelpful for younger adults with no credit bureau history, and often provide an incomplete picture of a customer,” the submission read.

Zip Pay is popular despite the risks. Picture: AAP

Zip Pay works like a transaction account and offers limits of up to $1000. It says it does conduct credit checks.

It charges a $6 monthly account fee it an item is not paid off by the end of the month, and a late fee of $5 if the minimum repayment of $40 is overdue for more than 21 days.

Finder’s Personal Finance Expert Kate Browne said consumers should approach BNPL schemes with caution.

“Buy Now Pay Later platforms such as Zip or Afterpay can be a convenient option, but it’s important to understand the costs involved. Some interest-free platforms charge late payment fees of around $10 which can add up over time.”

“If you miss payments this can still affect your credit score so you need to make sure that you can make all the payments on time.

“Other fees may include monthly account-keeping fees or payment-processing fees so make sure you read the fine print”

Financial comparison site Mozo has also found during the COVID-19 pandemic that almost 70 per cent of Australians with a BNPL account felt financially stressed about purchases, and one in three were spending more.

“If you do find yourself uncertain about how you’re going to make repayments, be proactive about your situation and reach out to your provider,” Mozo director Kirsty Lamont said.

Aley and Isla Fisher. The Melbourne mum is paying back her Buy Now Pay Later debt and is warning others. Picture: Rob Leeson.

A TRIP TO THE HAIRDRESSER LED TO FOUR YEARS OF DEBT

It was a trip to the hairdresser where Aley Fisher first decided to defer her payment to Zip Pay.

Two years later, the 24-year-old Melburnian is battling a $1000 debt and fears it will take her another two years to pay off.

By that time, the mother-of-one from Clyde North will have also paid almost $300 in monthly account fees for her debt with Zip Pay. That’s on top of any late or payment dishonour fees she might incur, which are $5 and $10 respectively.

Ms Fisher sought advice from the National Debt Helpline after the COVID-19 pandemic struck. She lost her job as an administration assistant when lockdowns forced businesses to close, and she did not qualify for the JobSeeker or JobKeeper.

Aley, Isla and Aaron Fisher. She fears she will be paying her $1000 BNPL debt for the next two years. The 24-year-old mother, from Melbourne, lost her job recently. Picture: Rob Leeson.

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She said it was difficult to pay down her debt while out of work with rent, household bills and a car loan to pay.

“I was making monthly payments of $40, and when it goes into the Zip Pay account, it basically tops it up,” Ms Fisher said.

“Instead of paying it off I was just putting more money in there, which I would then spend. Next thing I know, I’d spent the full $1000.”

Ms Fisher found herself turning to Buy Now, Pay Later more frequently when she had taken some time off work.

She said the pandemic had caused prompted her to get on top of her debts.

“I’ve stopped using it because I realised with all my other debts going on it was just an extra thing I had forgotten was technically money owing,” she said.

“In my mind it was kind of like a savings account, but it was actually a debt. It wasn’t $80 that was mine, it was $80 out of the $1000 that I owed.”

She also had a $500 debt with Afterpay which she paid off.

Originally published as Buy Now Pay Later spending surges during lockdown as Australians call for debt help