Commissioner's Blog: Buy now, pay later – convenience or catch?
With Commissioner for Consumer Protection David Hillyard
A flurry of bills has depleted your bank account, but you suddenly need a new fridge and one of your favourite brands is on super-special. It’s a tempting scenario: the chance to receive a product or service immediately without paying for it straight away.
As the term suggests, buy-now-pay-later arrangements enable you to receive goods and then pay off the amount in instalments further down the track through providers such as Afterpay and zipPay.
In contrast to lay-by, the item is available to you straight away. Likewise, regulations that cover credit cards and loans do not always apply to buy-now-pay-later providers and arrangements.
According to the Australian Securities and Investment Commission (ASIC), the number of monthly buy-now-pay-later transactions in Australia skyrocketed from around 50,000 in 2016 to 1.9 million in 2018.
However, ASIC also found that one in six buy-now-pay-later users had become overdrawn, delayed bill payments or borrowed additional money. Most consumers reported that the option allowed them to buy more expensive items and generally spend more than they normally would.
Most buy-now-pay-later providers do not check the purchaser’s ability to make repayments or credit history, with ASIC warning that users could take on too much credit and have trouble repaying.
The key advice is to check the terms and conditions before you sign up to any buy-now-pay-later scheme. They are often promoted as “interest-free” but late fees, account-keeping fees or payment processing fees may apply.
"Although you may make a purchase for $100, if you have one late payment it will cost you a further $17 plus any potential bank fee for a payment default,” Bev Jowle from the Financial Counsellors’ Association of WA warns.
Check out www.moneysmart.gov.au for tips on staying in control when you use a buy-now-pay-later service, including:
- Plan ahead to ensure the repayments fit into your budget and other financial commitments.
- Link your buy-now-pay-later account to your debit card instead of your credit card to avoid extra debts or interest.
- Don’t overcommit – stick to a limit and only have one buy-now-pay-later at a time.
- Contact your provider straight away if you’re having trouble making repayments.