‘Tis the season to be jolly, but it’s important not to get carried away when using ‘buy now, pay later’ providers to fund Christmas gifts
Not surprisingly, one-in-five users struggle to make their repayments on services such as Afterpay or Zip Pay, new research has found.
A new report from ASIC shows one-in-five users were late paying their other bills, including home loan repayments, as a result of using these services.
What are ‘buy now, pay later’ services?
‘Buy now, pay later’ arrangements allow you to buy goods and services immediately, and repay the amount over a series of instalments.
If you make a purchase using market leader Afterpay, for example, you’ll pay your first instalment at the time of purchase, and then the remaining three instalments over the next three fortnights.
If you pay on time, there’s no fee for you (that’s charged to the merchant). However, if you’re late to make a repayment, you’ll incur a small fee (usually $10).
On the face of it, it’s a pretty good arrangement
But where you can run into financial trouble is using several ‘buy now, pay later’ services without a plan to pay the money back over the coming fortnights, especially over the holiday season when your focus doesn’t tend to be on the household budget.
One-in-five consumers miss paying other bills on time
A staggering 20% of ‘buy now, pay later’ users miss or are late to pay other bills in order to make their ‘buy now, pay later’ payments on time.
The bills most commonly affected are household bills (44%), credit card payments (32%), and, worryingly, home loan repayments (22%).
What’s really surprising is that 15% of 1,655 users surveyed by ASIC say they took out an additional loan in order to make their ‘buy now, pay later’ payments on time.
“[Some consumers] are experiencing financial hardship, such as cutting back on or going without essentials (e.g. meals) or taking out additional loans, in order to make their ‘buy now, pay later’ payments on time,” the ASIC report says.
Some final considerations
With many families doing it tough right now, it’s important not to take on any debt that you can’t afford to comfortably repay – no matter how straight forward and low risk it may seem
It’s also worth noting that while the Afterpay approval process doesn’t (generally) involve credit report checks, Afterpay (and its competitors such as Zip Pay) is still a credit liability that needs to be disclosed when applying for a home loan.
So if you have any doubts about whether a ‘buy now, pay later’ purchase might affect your ability to secure a home loan – or pay off your existing one – then please feel free to get in touch.