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Booming buy now, pay later causing money troubles for 1 in 3 users

Booming buy now, pay later causing money troubles for 1 in 3 users

Almost a third of people who use buy now, pay later services (BNPL) are finding themselves in financial trouble, according to RateCity research.

RateCity has surveyed 1009 Australians to find out what impact these services are having on their personal finances, particularly in light of COVID-19 and ahead of the next ASIC review, due out later this year.

RateCity BNPL survey findings:

Who’s using BNPL?

  • 1 in 3 people have used BNPL (32%).
  • More women have used BNPL than men (37% of women compared to 27% of men).
  • Half of 18 to 34-year-olds have used Afterpay, Zip Pay or similar.

BNPL can lead to money troubles:

Almost a third of people (28%) who have used BNPL found themselves in money troubles as a result. This includes:

  • 16% of people overstretched the budget leaving them struggling to pay for other expenses.
  • 14% have paid a late fee.
  • 9% (almost 1 in 10) went into overdraft on their bank account because of BNPL payments.

BNPL causing people to impulse buy:

  • More than half of those surveyed (53%) said they are more likely to impulse buy using BNPL.
  • Almost 7 out of 10 young Australians said it makes them more likely to impulse buy (68% of 18 to 34-year-olds).
  • Women are more likely to impulse buy using BNPL than men (women 57%, men 47%).

Product Name Card

Bendigo Bank Low Rate Credit Card

Purchase Rate

Purchase Rate

0.00

% p.a

for up to 20 months, then 11.99%

Interest Free Days

Interest Free Days

55

Card limit

No set max

Late Payment Fee

Go to site

Purchase Offers

0% on purchases and balance transfers for up to 20 months from account opening.
Product Name Card

St.George Bank No Annual Fee Visa

Purchase Rate

Purchase Rate

0.00

% p.a

for up to 12 months, then 20.74%

Interest Free Days

Interest Free Days

55

Card limit

$40k

Late Payment Fee

$15

Go to site

Purchase Offers

0% for 12 months on APR
Product Name Card

Westpac Low Rate Card (Cashback offer)

Purchase Rate

Purchase Rate

13.74

% p.a

Interest Free Days

Interest Free Days

55

Card limit

$50k

Late Payment Fee

$15

Go to site

Cashback

up to $400 Cashback when you take out a new Low Rate credit card. New cards only. T&Cs and exclusions apply.Get
Product Name Card

St.George Bank Vertigo Visa (Balance Transfer Offer)

Purchase Rate

Purchase Rate

13.99

% p.a

Interest Free Days

Interest Free Days

55

Card limit

$40k

Late Payment Fee

$15

Go to site

Balance Transfer

0% for 32m BT (0% fee) + $0 First Year annual Fee

BNPL booming in Australia

The buy now, pay later market in Australia is booming, with a growing list of providers now available in Australia. Dominating the market is Afterpay, with 3.3 million active customers in Australia and NZ and Zip Co with 2.1 million in Australia. Latitude Pay has 425,000 customers in Australia and NZ.

RateCity research director, Sally Tindall, said: “Every day, thousands of Australians are signing up to these services, all wanting to purchase something now, but delay the pain of actually paying for it.

“Our research found 28 per cent of buy now, pay later users are getting themselves into money troubles, with some unable to pay their bills as a result,” she said.

“It’s concerning more than half of buy now, pay later users surveyed said these platforms caused them to impulse spend."

A spokesperson from Zip Co pointed out that the company’s own numbers do not align with RateCity’s findings.

“RateCity’s research does not reflect Zip’s experience where, despite COVID, only 0.002% of Zip’s customers are in hardship (840 from 2.1 million),” he said.

“Whats more, a recent Senate interim report found (recommendation 8.63) even at the peak of COVID consumer financial hardship requests in March and April 2020, across the BNPL industry was less than 1 per cent.

“More broadly, Zip has always done credit checks on all customers (each month about 1 out of 100 Zip customers is late each month compared with 1 in 6 for credit cards). If a Zip customer misses a minimum payment their account is locked, so they cannot get into a debt spiral, unlike a credit card.”

Ms Tindall said impulse shopping can put a sinkhole into the best laid savings plans.

“Hit pause before you pay, at least for 24 hours, and if you make a mistake, send your purchase back. There’s nothing worse than having a bad shopping decision hanging in your closet.

“While buy now, pay later has become the school of hard knocks for some Australians, services such as Afterpay put customers on a much shorter leash than a standard credit card, if they stick to just one platform.

“People that have a number of purchases on the go across several platforms risk losing track of their repayments. It can easily translate into multiple late fines and, in some cases, overdrawn fees from your bank.

“If you’re applying for a home loan be aware, heavy use of buy now, pay later services could be a red flag and potentially reduce the amount the bank will let you borrow,” she said.

Tips if using buy now, pay later

  • Read the terms and conditions.
  • Set yourself strict spending limits.
  • Don’t impulse buy.
  • If you get into trouble, pull the pin.

Key BNPL services available in Australia

BNPL providerWhat can you buy and where can you use it?

Payment schedule

Max value of purchasesAccount feesLate fees

Perform credit checks?

AfterpayUse at affiliated retailers.

Primarily non-essential items.

4 instalments over 6 wks$2,000No interest or monthly fees.$10 per late repayment and an additional $7 if you don’t pay in 7 days. Max fee 25% or $68 whichever is lower.No
BundllAnywhere Mastercard is accepted.

Can be used for essential and non-essential items

Repay within 2 weeks.

Extend between 2 – 12 wks for a fee.

$1,000

No fees for basic bundle.

A 2-week extension costs $5. A 12 wk plan costs 5% of amount.

$10 late payment fee then account is suspendedNo credit check for standard bundll.

Credit check for ‘Superbundll’.

DeferitUsed only to pay bills (primarily utility bills)4 fortnightly instalments$2,000 limit per bill$5.99 /mth when you have bills owing.

Card payments include 1.5% + 20c fee.

None.Yes
humm (Little Things)Use at affiliated retailers as well a majority of BPay billers.

Primarily non-essential items.

5 or 10 fortnightly instalments$2,000No fees if making 5 fortnightly instalments.

$8 mthly fee if making 10 fortnightly repayments.

$6 for each late paymentMay check your credit rating, but this won't affect your score or leave a record on your file.
KlarnaUse in most stores via the Klarna app (excludes supermarkets).Pay in 4 fortnightly instalments.

Can extend for 2 weeks for a fee.

$1,000Up to $7 fee to extend for 2 weeks (dependent on purchase price).$3 - $15, depending on purchase price, per late payment. Max fee is $45.Yes - visible on your credit report but will not impact your credit score
LatitudePayUse at affiliated retailers.

Primarily non-essential items.

10 weekly repayments.$1,000None$10 per late payment, capped at $10 for purchase under $50; and $50 for purchases over $50.Yes
LaybuyUse at affiliated retailers.

Primarily non-essential items.

6 weekly repaymentsNot statedNone$10 per late payment and an extra $10 if you don’t pay in 7 days. Max $100Yes
OpenPayUse at affiliated retailers.

Primarily non-essential items.

Payment plans of between 1 and 24 mths.Not statedVaries according to payment plan and merchant.Up to $9.50 per late repayment and up to $19.50 if you don’t pay within 7 daysMay do a credit check.
PayItLaterUse at affiliated retailers.

Primarily non-essential items.

4 weekly repayments$1000None$10 per late repayment and an additional $5 if you don’t pay after a week.Yes, but using its own tests and document verification services.
SplititUse at affiliated retailers.

Some retailers require a credit card

Not statedWorks on existing credit card limit.NoneNoneNo
Zip PayAnywhereFlexible repayment schedule provided you pay a min $40 / mth$1,500$6/mth if you have money owing.A late fee of $5 applies after 21 days of not paying the minimumYes

-Alison Cheung contributed to this story.

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This article was reviewed by Senior Finance Writer Liz Seatter before it was published as part of RateCity's Fact Check process.

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