Paul's Insights: The new trend that can break good money habits
Buying now is easy. Paying for purchases later can be a lot harder, and a new report shows 'buy now, pay later' services (BNPL) are leading some Australians into financial trouble.
BNPL refers to the growing numbers of services – or digital platforms, that let you make an on-the-spot-purchase, take the item home and pay for it later. I’m talking about the likes of Afterpay, Openpay and a whole host of other ‘deferred payment’ providers.
Unlike credit cards, interest isn’t usually charged on BNPL accounts. Instead, fees can apply if you fall behind with payments. These fees tend to modest in dollar terms, but when people have a number of purchases on the go, across multiple platforms, it’s a lot more challenging to keep track of repayments.
Perhaps the bigger problem is that BNPL services make it easy to overspend. At a time when an estimated 4 million Australians are relying on JobKeeper payments to keep their heads above water, this makes BNPL worth a closer look.
New research by RateCity shows that one in three Australians have used BNPL, but it’s especially popular among 18-34-year-olds, half of whom have used Afterpay, zipPay or similar.
Almost a third of people who’ve used BNPL have found themselves in money troubles. This includes 16% of people who’ve overstretched their budget, leaving them struggling to pay for other expenses. More than half of those surveyed (53%) said BNPL platforms caused them to impulse buy – a figure that rises to seven out of ten Australians aged 18-34.
As RateCity points out, thousands of people are signing up to these services, all wanting to purchase something now, while delaying the pain of actually paying for it. Given the potential downsides, it’s important to approach BNPL with care.
If you plan to use BNPL, aim to stick with just one provider, and set strict spending limits. Make a habit of taking a breather before you go ahead with a purchase, some cooling down time can take the gloss off an impulse buy.
If you’re applying for a home loan, take extra care. Heavy use of BNPL can see a bank reduce the amount they will lend to you. It could be the difference between achieving a life-changing goal like buying your first home, or being left with a whole load of here-today-gone-tomorrow purchases that you never really needed.
Paul Clitheroe is Chairman of InvestSMART, Chair of the Ecstra Foundation and chief commentator for Money Magazine.