Be sensible with pay later services

Move over debit and credit cards; consumers are flocking to Buy Now Pay Later, BNPL, services.

Afterpay, Zip Pay and several similar payment solutions allow shoppers to take home their goodies now while paying them off via a few weekly, fortnightly or monthly payments.

There’s no interest payable as such, although fees are charged for late payments.

A survey by Mozo revealed that 30 percent of Australian adults have one or more BNPL accounts, and they are not afraid to use them.

Afterpay, our most popular BNPL service, achieved sales of $4.3-billion across Australia and New Zealand in the 2019 financial year, nearly double its sales of the previous year.

With the nation set to splurge about $25-billion on Christmas, it is a safe bet that plenty of that spend will be by BNPL.

But with 60 percent of those surveyed by Mozo admitting that BNPL lead them to buy things that they wouldn’t have otherwise, it begs the question: how do we use this payment option sensibly during the silly season? Set your limits: Make sure you have a budget for your Christmas spend and use it to help resist the temptation of impulse purchases. Track your spending: Don’t just track your BNPL spending. Make sure you review credit and debit card purchases, too. Are you staying within budget across all your spending methods?

Avoid fees: Around one third of BNPL users have missed at least one payment. While late fees might seem modest, they can add up. Don’t repay BNPL loans with a credit card: If you do not pay off your entire credit card bill within the interest-free period, adding your BNPL repayments to the card might see you paying a high rate of interest on your purchases. It is better to use a debit card or direct debit from your bank account. Avoid BNPL if you’re saving for a home loan: Lenders might look at your use of BNPL as a sign that you do not have significant savings and are living from payday to payday. The lower your debt, of all types, the easier it will be to get a mortgage. Have a happy festive season: Used wisely, BNPL can help you jingle your bells and put the merry in your Christmas. Just make sure you know what you’re signing up for and that you can meet all of the regular payments. Take care, and you’ll be able to enjoy the start of the New Year without a financial hangover.