Branded the modern-day layby, ‘buy now, pay later’ services essentially offer the same thing, except you get the product up front—the outfit, the watch, even certain domestic flights within Australia.
If you haven’t heard of buy now, pay later services, or are keen to know more, we explain what they are, how they work and when it’s possible you could run into financial strife if you’re not careful.
What are buy now, pay later services?
Buy now, pay later services, such as Afterpay, Openpay and zipPay, are offered by approved retailers and provide another form of payment option when you’re shopping online and sometimes instore1.
They allow you to buy a product, take it home and pay for it in instalments over a set period of time via an online buy now, pay later account, which deducts your preferred debit or credit card.
While payments are withdrawn automatically (for instance, over four fortnightly instalments if you’re using Afterpay2), generally you can make repayments before they are due as well.
Purchase limits do apply though and depending on the provider will typically vary according to things like how long you’ve been using the service and your payment track record to date.
How do they charge?
Many buy now, pay later services are interest and fee free (if you pay on time that is!). If a payment is scheduled to be deducted and you don’t have the money in your account, and haven’t attempted to pay what is owed via other means, you’ll typically be charged a late fee.
For that reason, it’s important you have the right amount of money in your account when each instalment is due, and that you’re across any other charges that might be payable before signing up.
According to buy now, pay later services, such as Afterpay, late fees are not a primary revenue driver, with the group saying 80% of its revenue is derived from merchant fees paid by retailers3.
Another thing to consider, if you’re using your credit card, is while the buy now, pay later provider might not charge interest on your purchase, you may still have to pay interest to your credit card provider if you don’t pay the full amount owing on your credit card by the due date.
Spending what you don’t have
While buy now, pay later services can be very handy if you have available funds and can pay on time, if you don’t, little debts stemming from things like late fees can quickly snowball into bigger debts, which can have a variety of repercussions. For this reason, it’s a good idea to have a budget in place when it comes to spending, so you don’t get in over your head.
How your credit rating could be affected
Many buy now, pay later services don’t check your ability to make repayments, so if you’re already in the red, further debt could mean bad news and possibly debt collectors at your door. On top of that, while these services might not check your history, they’re still able to report black marks against you to credit reporting agencies, which could make it hard to borrow money in future.
If you have a customer complaint
Because you’re not going direct to the retailer when using a buy now, pay later service, you might also want to check out the provider’s dispute resolution policy so that there are no surprises if something you purchased doesn’t turn up, or you want to refund or return something that wasn’t quite right.
It’s important to check the terms and conditions before you sign up to any new service provider to ensure you’re across things like fees and various other policies so you don’t get caught out.
In the meantime, if you’re struggling at all with your existing debt, you can talk to a financial counsellor at the National Debt Helpline free of charge by calling 1800 007 007.