Are buy now, pay later schemes a good idea this Christmas?

Buy now, pay later schemes might get some of us through an expensive Christmas. But there are plenty of pitfalls to avoid or the charges will start racking up. How to avoid getting stung.

Shoppers’ addiction to debt is amplified at this time of year as many hunt around for different payment options to get through an incredibly expensive period.

Buy now, pay later schemes are hugely popular and soon they will be put under intense scrutiny at a Senate inquiry which focuses on companies including Afterpay.

Its customer base has flourished to 2.2 million, and the average customer’s spend climbed from $700 in the 2016-17 financial year to $1100 in this financial year.

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Rival scheme Zippay has 850,000 customers who can make purchases up to $1000.

Unlike credit cards, these schemes do not charge customers interest on their purchases, but shoppers are stung by fees if they fail to meet the strict repayment criteria in time.

Given Christmas is just five weeks away, many shoppers will turn to these schemes to help fill their festive stockings.

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Financial comparison website Mozo’s Tom Godfrey said these payment options could work if used sensibly and if service providers did proper checks before dishing out credit.

“You can be left with one hell of a financial hangover,” he said.

“If you keep getting credit and at no stage your capacity to make repayments is assessed you can get into a debt spiral that you can’t get out of.”

Makeup artist Alania Roberts, 30, ran into trouble last year when she racked up about $800 using Afterpay to buy friends and family Christmas presents.

She was unemployed at the time.

Makeup artist Alania Roberts, 30, ran into trouble using buy now, pay later scheme Afterpay and has been unable to pay back the money owing.

“I thought I would be pay it off in the new year but I wasn’t thinking that far ahead,” Ms Roberts said.

“I still have $646 owing and I’ve been hit by late fees.”

She said the debt had made her stressed and anxious, and warned others to understand the fees and charges carefully before using any type of payment scheme.

Zippay founder Peter Gray said its schemes issued users with credit limits up to $1000.

Cutsomers have up to 60 days to repay money owing without incurring any costs.

“Customers can sign up to get an account, where the credit check and verification is done, then you can download the app and make transactions either online or instore,” Mr Gray said.

“And some differences between us and a credit card is with a credit card you can still make transactions if you are in arrears but with Zippay you cannot.”

@sophieelsworth

AFTERPAY

— No credit checks.

— Payments to be made in four equal fortnightly instalments.

— For new customers the first instalment of 25 per cent is charged at the time of purchase.

— $10 for an initial late payment.

— A further $7 fee if the payment is not made with seven days.

— Late fees capped at a maximum of $10 for purchases under $40 or maximum of $68 for larger purchases.

ZIPPAY

— Credit, ID and banking checks.

— Up to 60 days to pay in full without incurring costs.

— $40 minimum monthly repayments.

— $6 monthly fee if monthly balance not paid off in full.

— If the minimum repayment amount of $40 is not paid by 21 days after the due date a $5 late fee will be charged.