E22: Beware of buy now pay later!

Many of us will remember layby, where you paid off an item over time and then collected the item. Now you can make the purchase and pay it off in four or more instalments without waiting. Sounds easy, but problem is that if you don’t pay on time, you pay late fees and these can mount up week by week. So a $70 jumper might end up costing twice the price.

Patrick Veyret, the Senior Campaigns and Policy Adviser at CHOICE, the consumer organisation says Afterpay, Zip and other buy now pay later (BNPL) providers operate with very little regulation. And, an investigation by ASIC found in the 2017-18 financial year late fees accounted for 25% of Afterpay’s $117 million in revenue.

There are now around a dozen companies operating these kinds of buy now pay later schemes, and if you shop online you will have seen them offered prominently as a payment option. They are basically lending you money for free, as long as you pay on time. They are appealing to young people who may not have credit cards, or those who worry about credit card interest rates.

Patrick Veyret is concerned that people are being trapped into unaffordable debt, and sometimes using loans or credit cards to pay their buy now pay later obligations and in the process escalating their debts. In doing so they get trapped into a cycle of debt.

He strongly recommends people to contact National Debt Helpline if they, or a family member, is in this situation. They offer free and confidential financial counselling.

This is the advice from CHOICE on Afterpay and other buy now pay later schemes:

The safest way to shop remains to save and pay upfront so that you only buy what you need and don’t end up spending beyond your means. If you do use Afterpay, we recommend:

    • only setting it up with a debit card, not a credit card
    • set spending limits and stick to them
    • set up payment reminders to avoid accidental late fees, though Afterpay does automatically set up multiple reminders for users
    • contact Afterpay immediately if you’re having trouble making repayments.

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