Dangers of buy now, pay later
Give a man a fish, and you feed him for a day.
Teach him to fish, and you feed him for a lifetime.
Hang on. No-one’s got time for all that teaching these days, and it’s so unprofitable!
Why not just give the man a ‘‘buy now, pay later’’ loan?
He gets his fish today, and a needy businessman gets to earn a margin off his income tomorrow. Win-win.
Buy now, pay later mechanisms are once again expanding, and I’m not celebrating.
In recent weeks there’s been a surge in new forms of buy now, pay later debt.
It’s the likes of Afterpay, Oxipay, Laybuy and PartPay.
They are all basically the same service.
They let consumers buy something now, and pay the money back in a number of future instalments.
There’s no interest to pay, but make no mistake: this is debt.
❚ Stay in the black
❚ Avoid the red
❚ Make saving normal
First of all, shoppers who miss payments have fees to pay.
Second, failure to pay can have a credit-rating effect.
Third, not paying may bring the debt collectors round.
And just because there’s no interest to pay does not mean this is cost-free.
Shops just build the costs of these buy now, pay later arrangements into their prices, so shoppers really do get to pay more.
It’s almost impossible to live without buy now, pay later loans.
It’s how we buy houses, how most people buy cars, and how many people buy furniture and consumer goods.
And as a result, we over-pay for all of them.
What galls me most about the likes of Afterpay, Oxipay, Laybuy and PartPay is that they are all extremely short-term debt.
Take Oxipay. Buy a TV for $900, and repay in four fortnightly instalments of $225.
What’s wrong with just waiting eight weeks and saving the money?
‘‘Debt has been so normalised in our society that people incur it thoughtlessly.’’
The effect is the same: The shopper gets the TV. Sure, they have to wait, but they incur no debt risk as a result.
Debt has been so normalised in our society that people incur it thoughtlessly.
I know well-paid folks who routinely carry credit card debt they could do without, seemingly unaware that money they spend on interest could be invested.
Then they’d be the ones collecting the interest, not paying it.
The new buy now, pay later schemes are better than carrying debt on credit cards, but they look to me like the next step in normalising debt.
‘‘Normal’’ should be saving for consumer goods, and discretionary purchases, and (heaven forbid) doing without things you haven’t actually got the money to pay for now.
The basic rule of debt is that it should be used to buy, or improve, or maintain appreciating assets, or essential ones.
That means education, houses, businesses, and (sometimes) vehicles.
It may also mean whiteware, depending on your household income.
Tragically, for some households on really low incomes, avoiding the desperation debt trap is very hard.
The rest of us have no such excuses.
No savings? The temptation is to buy things using short-term loans. Resist it.