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 retailers, 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 allow you to break down your purchases into smaller instalments over several weeks.
While there are some of the advantages of using ‘buy now, pay later’ 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, these services can help with cost smoothing, or allowing 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:
- 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 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 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 which could 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 add up over time.
Future impacts
Your activity with services like Afterpay and ZipPay could potentially have an impact on your credit history. 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, which 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 Afterpay effectively can have its benefits for budgeting if done right, so 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 only and making the payments on time to avoid getting into further financial trouble.
Want some help with budgeting? Contact your nearest bcu branch for one on one help in setting up your accounts to help reach your goals.