Buy now, pay later schemes under the spotlight this Christmas

Comparison site and consumer advocate RateCity.com.au welcomes the Australian Securities and Investments Commission’s initial review into the ‘buy now, pay later’ industry.

ASIC’s report serves as a timely warning not to over-indulge financially this Christmas, with an alarming $903 million outstanding in buy now, pay later balances.

RateCity.com.au research director Sally Tindall said consumers need to be careful about how much they spend using these platforms.

“Payment platforms like Afterpay and Zip let people buy things, even if they don’t have enough money in their bank account,” she said.

“While these services do aim to lend responsibly, and typically have lower credit limits and more stringent repayments terms than most credit cards, the bottom line is you can still get yourself into financial trouble if you’re not careful.

“The fact that one in six customers have become overdrawn, delayed their payments or borrowed extra money is concerning. This is a service that targets young shoppers that are short on cash.

“If you’re using one of these payment plans this Christmas, just be aware it can leave a nasty sting in the tail if you don’t have the money to clear your debt.

Tips for using buy now, pay later services

• Before signing up to a buy now, pay later service, understand how it works and think about the consequences if you don’t have funds in your nominated account to clear it.

• Find out from your bank to see if they will let you go into overdraft or in the case of your credit card, over the limit and what the penalties are for doing so.

• Don’t impulse buy – delay any large purchases for at least 24 hours. If you still think it’s worth buying the next day then work out a way to pay for it.

Learn more about Afterpay

Afterpay is one of the most popular buy now, pay later payments platforms. It lets you buy an item in store or online and pay it back in four installments over eight weeks, automatically deducted from your nominated transaction account or credit card. Already 1.8 million Australians have signed up to the service.

One of the key selling points for Afterpay is that there are no additional costs if you pay on time, however there are late payment fees if you can’t pay the money back.

Afterpay fees

If you miss a repayment, you’re typically charged a $10 fee by 11pm the following day, followed by a $7 late payment fee if you haven’t paid the installment within seven days. If you miss all four repayments it will typically cost $68 in fees.

However, for orders below $40, a maximum of one $10 late fee is applied. For orders $40 or above, the total of the late fees is capped at 25 per cent of the original order value or $68, whichever is less.

Overdraft bank fees

The majority of people use their debit card to make Afterpay installments. The key is to make sure you have enough money in your account to cover the repayments.

If the balance in your transaction account falls below zero, the majority of debit card providers will let you go into overdraft on your account. While you will still make your Afterpay installment and avoid their fees, the majority of banks will slug you with an overdraft fee every time you do. 

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