 Buy Now, Pay Later schemes have been rising in popularity over the past few years, to the point where most people use (or at least know someone who uses) the service. But are Buy Now, Pay Later schemes bad for your financial health? How do they work? This article will hopefully answer some of these questions. What is Buy Now, Pay Later?
Buy Now, Pay Later (BNPL) services allow you to split a purchase into multiple interest free repayments. Popular BNPL services in Australia include:
Unlike a traditional credit card, BNPL does not accrue interest. Instead, fees are charged when you miss or make a late payment. Do they impact my credit score? No, these services are not usually linked to your credit score. I just financed a burger for four payments of $4.87. Am I in financial trouble? This is where these services can get tricky. To some people, not using a traditional credit scoring system is great as it allows flexibility and can incur low (or no) costs when payments are made on time. The problem is that because these systems don’t check credit scores, they offer financing to almost anyone. Even people who may already be struggling with debt or low credit scores are able to finance large purchases with BNPL. A traditional credit card requires at least some prior approval (usually checking your credit score) and personal loans require a review of your financial standing. BNPL services do not have these safeguards, meaning that people in debt can be sunk even further into a spiral of repayments and late fees. While no, it’s not technically a problem to finance your lunch, it can be a symptom of greater financial strain, especially if you’re regularly relying on these services for purchases. How do I know if I can use this without risking my financial stability? Afterpay and Klarna can be legitimately useful for breaking payments down over multiple pay cycles (and there is also much to be said about using it to accrue interest) but if you’re already in a rocky financial situation, ensure you’re extremely careful about using these services. Some tips include:
Remember, BNPL isn’t inherently a harmful service, but it can become one if not used correctly. Feel free to get in touch with us if you have any questions about the impacts of BNPL on your financial situation. Learn more on the Money Smart website. Comments are closed.
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