Experts concerned as Darling Downs residents’ debt levels for ‘buy now pay later’ services, unsecured loans explode

Household debt with services like Zip, Afterpay and payday loans on the Darling Downs has increased over the past year, as experts say companies are targeting groups with poor financial literacy.

Financial experts are concerned by the levels of debt held by residents in payday loans and buy now, pay later services like Zip or Afterpay. (AAP Image/Derek Rose)

Financial experts are concerned at the rate of which locals are taking out “predatory” loan and credit services, after it was revealed Toowoomba has some of the highest levels of “buy now, pay later” debt in the state.

New data from Digital Finance Analytics showed the average balance of Darling Downs households who used retail credit services like Afterpay or Zip was $3500 in December, well above the Queensland and national average of about $2750.

Residents’ average debt levels for retail services, payday loans and other unsecured loans only increased between January and December last year.

University of Southern Queensland’s Associate Professor of Law Toni Brackin, who specialises in financial literacy, said she was concerned but not surprised by the new statistics.

“As we move past the immediate financial shock of the COVID-19 pandemic and government stimulus packages start to reduce we are likely to see an increase in household debt,” she said.

“We should certainly be concerned about increases in household debt as it can lead to financial vulnerability and eventually financial distress.

“The most concerning trends are the increase in the average payday lending balance per household as well as Buy Now Pay Later balances.

“The average balance per household for Buy Now Pay Later in the Darling Downs is much higher than the QLD average.

“This is particularly concerning if people are using this kind of short-term debt to meet everyday expenses.”

Prof Brackin recommended people seek professional advice before taking out short-term, high interest loans.

Lifeline Darling Downs financial counsellor Donna Neale-Arnold is now fully booked up with clients, while the team has a long wait list of people in desperate need of support.

She said residents had moved away from traditional credit cards in favour of payday loans and BNPL services like Afterpay, which often had fewer restrictions to get accepted.

This is correlated in the new data, which showed credit card debt levels in the Darling Downs dropped.

“They’re not a bad alternative to credit cards, as long as people take out one at a time, but so few people do that,” she said.

“People will do ZipPay at Bunnings, then buy food with that borrowed money.

“I don’t think they’re a bad thing, but they need to be regulated and drawn in, because a lot of the money they make are through the late payment fees.

“They are absolutely predatory — because it’s so easy (to apply), it’s replacing credit cards and people don’t understand that interest is like a fee.”

Toowoomba financial advisor and small business advocate Chris Black.

Fortress Financial Solutions director Chris Black said payday and BNPL loans were targeted at people who often lacked the financial literacy to understand what they were signing up for.

“ZipPay and Afterpay financing becomes a problem because you can buy so much without having any money,” he said.

“I think it attracts and is targeted to people from low socio-economic backgrounds, who don’t have an ability to meet the conditions and it could send them into a debt spiral.

“Look at the Wallet Wizard ads — the money comes out of the fridge.

“It comes down to financial literacy, and it’s not really taught well going through school, so that’s a significant problem.

“They’re marketing it to these people, and that’s how those companies make their money — the people with money don’t need the product.”

The Australian Finance Industry Association has announced new regulations on BNPL services, including caps on the number of late payments a person can accrue and mandatory financial checks before purchasing.

DARLING DOWNS DEBT LEVELS, JAN-DEC 2020

Amounts are average balances for using households

Credit cards: $2615 ($3204 in January)

Unsecured loans: $9046 ($6329)

Payday loans: $1566 ($1100)

Buy now, pay later: $3597 ($3002) Second-highest in Queensland

TOP TIPS FOR DEBT REDUCTION

1. Speak with your bank or lender about their options to help with debt issues

2. Start spending less than you earn

3. Pay down more than the minimum repayments to save money on interest

4. Speak with a financial advisor or counsellor