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 sites, the ability to buy now, 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.

Afterpay has come under fire in the news recently, due to its increasing popularity - in fact, more than 1.9million transactions were made in the month of June 2018*.

While there are some of the advantages of using "buy now, pay later" services, there are also a few things to keep an eye out for to make sure you're not getting yourself into financial trouble.

Buy now, pay later

Afterpay allows you to essentially layby purchases, by paying off your purchases in four equal instalments and is 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, and 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 (other than the repayments for your goods)
• Receive your goods straight away (compared to a traditional layby)
• Interest free - you won't pay more for the goods than you would to buy outright
• An alternative to a credit card
• No fees, if all repayments are made as per the schedule

Things to watch out for

Australians currently owe over $903 million to buy now, pay later services, and approximately one in six users are in some kind of financial difficulty*. There are very real risks to using these facilities if not 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… but make four or five of those purchases, and your repayments could end up being over $200 per fortnight.

Missed payment fees

If you make your scheduled repayments on time, happy days. No fees, no additional costs. But miss a payment, and you'll get hit.

Future impacts

Your history with services like Afterpay and ZipPay can have an impact on your credit history. Missed payments or accrued debts can be recorded on your credit file and reported to debt collectors, which could affect your ability to apply for a home loan or credit card down the track.

Stay on top

Using Afterpay effectively can have its benefits for budgeting, 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 pay day 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 Afterpay or ZipPay repayments 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 repayments to avoid getting into further financial trouble.

Want some help with budgeting? Contact your nearest branch for one on one help in setting up your budget to reach your goals.

*Source: Australian Securities and Investment Commission, https://asic.gov.au/about-asic/news-centre/find-a-media-release/2018-releases/18-357mr-asic-puts-spotlight-on-the-rapidly-growing-buy-now-pay-later-industry/