‘Buy now, Pay Later’ services have become a trendy way for people to pay for goods and services when they do not have the cash up-front, and as an easy alternative to credit cards.
But before you decide to use a ‘Buy now, Pay Later’ service, it important to know exactly how it will impact your budget and your set of circumstances, so you can decide whether the service it appropriate for you.
Just as credit cards saw people find themselves overcommitted in the ‘90s and early 2000s, ‘Buy now, Pay Later’ apps can potentially get cash-strapped young people into further financial trouble. The apps are quick and easy to use and therefore can potentially encourage impulse spending – which becomes even more problematic if the agreed repayment terms aren’t met by the user.
The problem with the ‘Buy now, Pay Later’ apps is although they first appear as a risk-free, easy option to buy goods today, they have the appearance and feel of a microloan which can attract extra fees and charges.
Afterpay, for example, charges a $10 late fee if payment isn’t made within 24 hours of an auto-payment declining. Further, if you don’t pay within 7 days, another $7 is charged. For example, if you missed all four payments on a $300 purchase – you could end up paying $68 in late fees, which is around 22% of the outright cost*.
Now imagine you’ve got a few different purchases stacked up on your Afterpay account, and you miss them all because your shifts at work are cancelled – you can see how it’s easy to get into big financial trouble very quickly!
The other issue with ‘Buy Now, Pay Later’ apps is that they could actually be negatively affecting your credit score which in turn could impact your ability to get a loan from the bank in the future. Even though ‘Buy Now, Pay Later’ organisations may not perform a credit check, using such credit may be considered a lender of last resort consequently placing you in a higher risk category to those future lenders.
Finally, before using a ‘Buy Now, Pay Later’ app, it’s important to consider your needs, wants and your personal circumstances. For instance, is the purchase necessary or impulsive? Are you able to afford the repayment commitment? Regardless of your answer, you may wish to rethink using a ‘Buy Now, Pay Later’ service until your budget comfortably allows the purchase.
At Debt Fix, we want to help all Aussies get out of debt, stay out of debt, and be financially secure. That’s why we recommend that you do your own research and really think about the benefits and problems that come with financial products like ‘Buy Now, Pay Later’ apps before you use them.