With the cost of living increasing, there has been an increase in the number of Australian’s using ‘Buy Now, Pay Later’ (BNPL) schemes to purchase essential, everyday items such as groceries. These schemes – such as Afterpay, Klarna, Humm and Zip Pay – allow Australians to spread the cost of their purchases over multiple payments, but receive the goods they are purchasing immediately, unlike more traditional lay-by offerings.
BNPL is often promoted as a cheaper alternative to credit cards, but new research from Curtin University and Financial Counselling Australia shows it could end up costing you more than if you used a credit card to make the same purchase.
The study compared late fees and account-keeping fees of BNPL providers, with the annual interest rate of a typical credit card. It found that a person struggling to make repayments could be charged fees equivalent to a credit card interest rate of 28.28% for Afterpay and 49% for Humm. This is significantly higher than the average interest rate of 22% on a typical credit card.
More than 38% of Australians have used a BNPL service, with more than 5.9 million active accounts currently registered. And according to Klarna, their users shop 20% more often, and purchase an average of 45% more per transaction.
Whilst there are some benefits to using BNPL services, including; being easy to use with no application process, availability when shopping online and in-store, and being interest-free, there are some very important things to consider before using them:
If you do choose to use a ‘Buy Now, Pay Later’ service remember these top tips:
If you’re experiencing financial stress or struggling with BNPL debts, please call the National Debt Helpline on 1800 007 007, or visit the Financial Counsellors Association website to find a financial counsellor within WA. The MoneySmart website also provides helpful resources on debt, budgeting and other financial matters.
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