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Buy Now Pay Later: When Will I Regret It?

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With interest-free “buy now, pay later” services like Afterpay, there doesn’t seem to be much that could go wrong. Or is there?

Australians love their credit cards, and now it seems we’ve fallen head over heels for buy now, pay later options like ZipPay and Afterpay.

After all, what’s not to love about buying something with no upfront payment required and no interest rates charged.

With Afterpay it’s not until two weeks later you have to pay for your purchase, and in four fortnightly instalments. With ZipPay, you put a minimum amount towards your purchase each month, and it’s your choice to pay in either weekly, fortnightly or monthly instalments.

Unlike a credit card, there is zero interest, and you won’t need to pay off a lump sum at the end of the month. A late fee of $10 or less a month is charged if you don’t meet your payments. Buy now, pay later services make the bulk of their money from the retailers that offer them, which makes it possible to charge lower customer fees.

If you can repay your purchases quickly and easily under the terms and conditions, it’s a shopping payment choice you’re never likely to regret. It’s when you start to miss a few payments that things can go wrong.

Wrong # 1: If you don’t have enough money in your bank account

You’ll be charged a late fee if one of your automatic payments fail, so it’s essential to track your bank account balance to make sure there’s enough in it when a payment is due. Try setting a reminder before the due date to check that other bills and expenses haven’t chewed up the money you thought you had in your account.

If you overspend and don’t have the funds to pay the instalments, late fees will keep adding up. For Afterpay customers, it’s a $10 missed payment fee and then $7 each week that goes by and your balance is still outstanding.

You don’t want to go down the route of not paying back your debt. The terms and conditions of most buy now, pay later services stipulate that they have the right to sell any unpaid debt to third-party collections agencies. Afterpay reportedly spent $1 million trying to recover unpaid debts in the 2017 financial year.

From buying a new pair of jeans to paying for an airfare, if you’re female and a millennial, there’s a good chance you’ve shopped using a buy now, pay later service. Afterpay says more than 15% of Australians between the ages of 18 and 36 are its customers, and 80% of these are female.

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Wrong # 2: If you link it to a credit card

You have the option to link payments to a credit card, but always opt for a debit card instead. Linking payments to your credit card is a poor choice if you already have trouble keeping up with credit card payments.

Wrong # 3: If it affects your credit rating

You can start using most buy now, pay later services without a credit check. So, if you’re already in debt, there’s nothing to stop you from falling further into debt.

Even though these companies rarely check your credit, there’s nothing to stop them reporting your late payments, missed payments and defaults to the credit reporting agencies. Black marks on your credit report can make it harder for you to borrow money and qualify for a loan. Remember, lenders check your credit rating as part of their due diligence when you apply for a home loan.

Wrong # 4: If it makes you buy on impulse

It’s easy to overspend because there are no advertised spending limits on most buy now, pay later solutions. Instead, they have algorithms for working out where to cut off your spending. With Afterpay, for example, the limit slowly increases to a maximum of $1,500 once you’ve established a credible track record.

As with any impulse purchasing, keep your buy now, pay later spending in control by having a clear idea of how many purchases you can comfortably afford to pay back. 

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