Russell Ward Finance Writer
‘Buy now, pay later’ schemes are surging in popularity with millennials and big-name retailers across Australia.
One of the leading digital payment platforms, Afterpay, was used to make more than $560 million in purchases by more than one million customers from over 7 200 stores as of September 2017, according to Choice. We look at how these schemes work and ways to stay on top of your repayments.
‘Buy now, pay later’ schemes
Schemes such as Afterpay, Openpay and zipMoney, you buy your products now and pay for them later. This means that the schemes allow you to make purchases without needing the full amount of cash upfront or a credit card.
For example, with zipMoney or Openpay, you sign up and receive a line of credit that can be used to make purchases at any participating retailer. For zipMoney, you then have a standard three-month timeframe in which to make interest-free repayments. Openpay gives you a mix of timeframes to choose from as standard.
With Afterpay, you select it as your method of payment and, unlike layby, you take the product right away, whether buying online or in the store. You then pay the borrowed amount in four fortnightly equal instalments over the next eight weeks with your debit or credit card. There are no fees as long as you make your payments on time.
What to watch out for
The main challenge with ‘buy now, pay later’ schemes is that you can easily overcommit by making large numbers of purchases without having to part with your cash upfront. And there’s often no credit check when you sign up, removing the check to see if this form of loan suits your current financial situation.
With Afterpay, when at the checkout, in store or online, you will only need to pay the first instalment of the total amount. Automatic deductions are made from a linked debit card or bank account each month, so you’ll always need to ensure the minimum amount is there. If you are unable to repay any of the following three instalments you will pay an initial $10 penalty for missing a repayment and a further $7 late fee if that missed instalment remains unpaid a week later.
Although your repayments are interest-free with schemes like zipMoney and Openpay, if you don’t pay off the balance within the agreed timeframe, a standard annual percentage rate (APR) is charged on your outstanding balance – a variable rate currently set at 23.9%.
Ways to stay on top of your payments
If you can, the safest way to shop is to pay before you play – in other words, save upfront to buy what you want so you don't end up spending beyond your means. If you use a buy now, play later scheme, staying on top of your payments is key. Here’s what you can do.
• Understand your commitment and the risks of not making your repayments.
• Ensure you have the funds in your chosen account to make the minimum repayments.
• Try to make your payments at the start of each month, before other expenses come out.
• Clear the borrowed balance before the repayment term expires or run the risk of your outstanding balance being charged at a much higher interest rate.
About the author
Russell Ward is a professional business writer who has been published in The Huffington Post, The Telegraph, CEO Magazine, Global Living, Mamamia and Thought Catalog.
Please note that this article is not financial product advice and does not take into account any person’s individual objectives, financial circumstances or needs.