With lots of us out and about Christmas shopping and purchasing gifts online for friends and family (and ourselves!) it is easy to get carried away with the festive spending season.
But it is also important to think about how you will pay for everything, particularly when using credit.
Personal loans and credit cards are now commonplace, and recent data from Roy Morgan, an Australian market research company, shows that awareness and use of ‘buy now, pay later’ services has increased rapidly around the country.
The research confirmed that 75.5% of Australians aged 14+ are aware of the many buy now, pay later services available to them (up from 36.9% in September 2018) and over 15.7% Aussies (over 3.3 million of us) have used buy now, pay later to secure a purchase this year, up from only 6.8% in September 2018.
Buy now, pay later gives you the option to buy and receive, goods and services now and pay for them later, in a series of instalments. Providers divide the cost of your purchase up which means you pay off the total cost over a period of time. Afterpay is one of the most widely known buy now, pay later providers but the list is growing and so are their marketing efforts, including using celebrity endorsements.
We can understand the appeal, especially at this time of year. But there are some things you should definitely be aware of when using buy now, pay later.
Here we look at some of the risks to look out for when you’re thinking of buying something now and paying for it later.
The industry is not closely regulated.
Buy now pay later providers do not have the same checks and balances or regulations that other loan and credit card providers do, meaning they don’t have to confirm that you have the means to pay back the debt you are accumulating. With so many providers out there, it is easy for you to quickly accumulate debt across multiple providers without any of them checking your finances or your capacity to make repayments.
Changes to your shopping, spending and saving habits.
It was recently announced that you can even use buy now, pay later at the pub. And that in itself is a risk. The sense of instant gratification in buying something you want but can’t afford can be damaging to our spending and saving habits.
It’s good to remember that saving up for something special can be satisfying too. Plus, shopping up big using buy now, pay later services has the potential to damage your chances of securing a formal loan – for a home or car, for example.
You can still be charged fees.
Delaying repayments and not meeting the instalment deadlines of buy now, pay later providers can attract late fees and charges. Although they don’t have ‘interest rates’ as such these late fees can quickly add up and may negatively impact your credit rating into the future.