Buy now, pain later?

Buying online can have its advantages; 24/7 shopping, no need to brave the crowds, delivered right to your door, and now - for many shoppers - the ability to buy now and pay later. Over the past few years, services like Afterpay and ZipPay have risen in popularity, particularly among younger people.

These services allow you to break down your purchases into smaller instalments over several weeks, but while there are some advantages of using ‘Buy Now, Pay Later’ (BNPL) services, there are also a few things be aware of to make sure you're not getting yourself into financial trouble.

Buy now, pay later

Afterpay allows you to pay off your purchases in four equal instalments, and it’s available online and in many physical stores. ZipPay, on the other hand, is more of a line of credit with a minimum repayment each month, and no fees charged if the full amount is repaid by the specified due date.

Both methods are quick to sign up for, provide an alternative to using a credit card, and are interest-free payment options.

The benefits

When used appropriately, BNPL services can help with cost smoothing and allow you to take advantage of cost savings if an item you've had your heart set on for a while comes up on sale a few days out from payday. Here are some of the benefits of buying now and paying later:

• Easy to use.
• No charge to use the service so long as payments are made on time (other than the repayments for your goods).
• Receive your goods straight away (compared to a traditional lay-by).
• Interest free - you won't pay more for the goods than you would to buy them outright.
• An alternative to a credit card.

Things to watch out for

Australians currently owe millions of dollars to ‘Buy Now, Pay Later’ services, and there are very real risks to using these facilities - especially if your repayments aren’t managed properly.

Small payments can become big payments quickly

The idea of paying your purchases off in small instalments seems cost effective and budget friendly, but it can actually encourage you to spend more. For example, the repayment instalment on one $200 purchase might only be $50, however if you make four or five of those purchases, then your repayments could end up being over $200 per fortnight. That could soon get difficult to manage, depending on your financial position.

Missed payment fees

If you make your scheduled repayments on time, happy days. There’s no fees to pay and no additional hidden costs. But if you miss a payment, you may get hit with some fees that can quickly add up over time.

Future impacts

Your activity with services like Afterpay and ZipPay could potentially have an impact on your credit history and score. Missed payments or accrued debts can be recorded on your credit file and reported to debt collectors if it’s outlined in the terms and conditions. That could affect your ability to apply for a home loan or credit card down the track. If you’re unsure, it’s safer to always read the fine print.

Stay on top

Using BNPL effectively can have its benefits for budgeting - if done right. Here are some tips to make sure you stay on top of your spending:

• Make your repayments ahead of time - Afterpay will direct debit your repayments every fortnight, but you can voluntarily make the payment before the due date. Make all your committed payments for the upcoming pay period on your payday so there's no risk of missing one, or if you can, pay out the purchase in full when you next get paid.
• Have your repayments taken from a debit card, not a credit card - Unless you're paying your credit card out in full each month, make sure your repayments come from a debit card so you're not adding interest to the list of potential additional charges.
• Stick to your budget - Consider how much you're repaying each fortnight in repayments to these services to make sure you're not overcommitting.

The best option of course will always be to save for your purchases before making them. But, if you do use services like Afterpay or ZipPay, make sure you're spending within your means and making the payments on time to avoid getting into further financial trouble.

Want some help with budgeting? Check out our money management app, mymo, for help reaching your money goals.

Important information

Banking and Credit products issued by Police & Nurses Limited (BCU Bank).

Any advice does not take into account your objectives, financial situation or needs. Read the relevant terms and conditions, before downloading apps or acquiring any product, in considering and deciding whether it is right for you. The Target Market Determinations (TMDs) are available on our website or upon request.