Millennials take up “pay later” with gusto

Millennials take up “pay later” with gusto

Young people have forgone traditional payment in exchange for the “buy now, pay later” approach, early adopting payment systems like Afterpay and ZipPay over credit cards.

That credit card in your wallet might be looking a little long in the tooth these days, and it might even be gathering the odd speck of dust here and there, as newer payment concepts are taken up.

If you want to buy something, depending on your age group, you may be more ready to embrace newer payment ideas instead of turning to the assortment of credit cards you’ve drifted through over the years, at least according to recent research.

Findings from Roy Morgan’s Digital Payment Solutions Currency Report paints a youth-filled picture for the recent “Pay Later” payments like Afterpay and zipPay, with Millennials’ 1980 to 1994 range and Generation Z’s 1995 to 2015, with just over half a million (559,000) Gen Z using these solutions in the past 12 months, while Millennials numbered 644,000. In the same time frame, Generation X’s adults born from 1965 to 1979 saw 304,000 trying the solutions, while much fewer from the Boomers (1944-1964) sitting at 78,000.

While it’s clear more people are embracing solutions like Afterpay, what’s abundantly clear from the stats is the awareness of the concept, which works very much like a lay-by, but has you pay for a purchase in instalments, something that can ease the burden on paying for goods with cash or leaning on a credit card and fearing the interest rate.

“The payment environment in Australia is facing rapid change as we see innovative new companies, such as Afterpay, changing the way people purchase goods that they may not be able to afford immediately,” said Roy Morgan’s Norman Morris, Industry Communications Director for the company.

“These ‘buy-now-pay-later’ companies are likely to pose a threat to traditional payment types such as credit cards as well as traditional financial institutions, as consumers can access a small amount of credit instantly with no documentation,” he said.

Though this implies growth for the “Buy Now, Pay Later” solutions, of which more are almost definitely expected, it doesn’t speak to the possible education some may feel is warranted for the solutions.

Similar to how credit cards can raise serious debt and bring to mind questions about how a credit score can have a long-lasting impact on your personal finances, so too can Pay Later solutions, causing 1 in 6 customers to be overdrawn, leaning on the services as a replacement for money they may not have.

“The fact that one in six customers have become overdrawn, delayed their payments or borrowed extra money is concerning,” said RateCity’s Research Director Sally Tindall.

“While these services do aim to lend responsibly, and typically have lower credit limits and more stringent repayments terms than most credit cards, the bottom line is you can still get yourself into financial trouble if you’re not careful,” she said.

All purchases will need to be paid off in time, but some services may be better for needs than others. For instance, credit cards will let you buy without the cash, but pay gradually as interest builds. Pay Later options like Afterpay, Ezipay, and zipPay work in a similar capacity and require no upfront money, but require you to stick to payment plans, with hefty fees if you don’t.

As with all financial decisions, it’s ideal to think them through and work out whether paying for something will pose a problem, or whether it’s something you can comfortably achieve. There are pros and cons for using services like Afterpay, and while the obvious pro is not needing to pay upfront, you’ll want to make sure the con isn’t that you’ll be trapped by payments you can’t necessarily afford.

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Learn more about credit cards

What is a credit card?

A credit card is a payment method which lets you pay for goods and services without using your own money. It’s essentially a short-term loan which lets you borrow the bank’s money to pay for things which you can pay back – potentially with interest – at a later date. Credit cards can also be used to withdraw money from an ATM, which is known as a cash advance. Because you’re borrowing money from a bank, credit cards charge you interest on the money you use (unless you repay the entire debt during the interest-free period). When you apply for a credit card, the bank gives you a credit limit which sets the maximum amount you can borrow using your card. Credit cards are one of the most popular methods of payments and can be a convenient way of paying for goods and services in store, online and all around the globe.

How do credit cards work?

Think of credit cards as a short-term loan where you use the bank’s money to buy something up front and then pay for it later. Unlike a debit card which uses your own money to pay, a credit card essentially borrows the bank’s money to fund the purchase. When you apply for a credit card, the bank assesses your income and assigns you a credit limit based on what you can afford to pay back. At the end of each billing cycle, which is usually monthly, the bank will send you a statement showing the minimum amount you have to pay back, including any interest payable on the balance.

How to pay a credit card

There are a few ways to pay a credit card bill. These include:

  • BPAY - allows you to safely make credit card payments online.
  • Direct debits - set up an automatic payment from your bank account to pay your credit card bill each month. You can choose how much you want to pay of your credit card bill when you set up the auto payments.
  • In a branch.
  • Via your credit card provider's app.

How do you use a credit card?

Credit cards are a quick and convenient way to pay for items in store, online or over the phone. You can use a credit card as a cashless way to pay for goods or services, both locally and overseas. You can also use a credit card to make a cash advance, which gives you the flexibility to withdraw cash from your credit card account. Because a credit card uses the bank’s funds instead of your own, you will be charged interest on the money you spend – unless you pay off the entire debt within the interest-free period. If you pay the minimum monthly repayment, you will be charged interest. There are many different credit card options on the market, all offering different interest rates and reward options.

How do you pay off credit cards?

The best way to pay off a credit card bill is to set a realistic spending budget and stick to it. Each month, you’ll get a credit card statement detailing how much you owe and how long it will take to pay off the balance by making minimum repayments. If you only make the minimum repayments, it will take you years to pay off your outstanding balance and add extra costs in interest charges. To avoid any extra charges, you should pay the entire bill. 

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.

Do you need a credit card to get a loan?

You do not need a credit card to get a loan, but you usually need to have a credit history. Without a credit history, a financial institution cannot assess your ‘credit worthiness’, or your capacity to pay off the loan.

If you don’t have a credit card, your credit history can reflect any record of paying off an asset. Without any credit credit history, you’re limited in the type of loans you can apply for. But you may be able to obtain a secured loan against an asset. For more information on improving your credit score, go here

How easy is it to get a credit card?

For most Australians, there are no great barriers to applying for and getting approved for a credit card. Here are some points that a lender will consider when assessing your credit card application.

Credit score: A bad credit score is not the be all and end all of your application, but it may stop you being approved for a higher credit limit. If your credit score is less than perfect, apply for the credit limit that you need, rather than the one you want.

Annual income: Most credit cards have minimum annual income requirements. Make sure you’re applying for a card where you meet the minimum.

Age & residency: You need to be at least 18 years old to apply for a credit card in Australia, and most require that you are an Australian citizen or permanent resident. However, there are some credit cards available to temporary residents.

Can we pay stamp duty by credit card?

Different states also have different rules about whether you can pay stamp duty with a credit card. Check the payment options for stamp duty on your local state revenue office website.

Some allow payments only from a savings or chequing account, whereas others allow payment through BPAY using your credit card. Also read the fine print to see if BPAY payments on your credit card are considered cash advances, as this could attract a higher interest rate.

Can a pensioner get a credit card?

It is possible to get a credit card as a pensioner. There are some factors to keep in mind, including:

  • Annual income. Look for credit cards with minimum annual income requirements you can meet. 
  • Annual fees. If high fees are a concern for you, opt for a card with a low or $0 annual fee. 
  • Interest rate. Make sure you won’t have any nasty surprises on your credit card bill. Compare cards with a low interest rates to minimise risk.

How to get money from a credit card

You can get money from a credit card, but generally it will cost you.

Withdrawing money from a credit card is called a cash advance, as it operates more as a loan than a simple cash withdrawal. Because it is a loan, you may be charged interest on your cash advance as soon as you make the withdrawal. Interest rates are also usually much higher for cash advances than standard credit card purchases.

In addition to the interest rate, you may also be charged a cash advance fee. This could be a flat rate, or a percentage of your total cash advance. If you are considering a cash advance, make sure to add up how much it will cost you before committing.

What should you do when you lose your credit card?

Losing your credit card is a serious situation, and could land you in financial trouble. Here is a simple guide detailing what to do when you lose your credit card.

Lock you card – Contact your provider and inform them about your lost credit card. From here lock, block or cancel your card.

Keep track of transactions – Look out for unauthorised credit card transactions. Most banks protect against fraudulent transactions.

Address recurring charges – If your card is linked to recurring charges (gym membership, rent, utilities), contact those businesses.

Check credit rate – To ensure you’re not the victim of identity theft, check your credit rating a month or two after you lose your credit card.

How long does it take to get a credit card?

There are a few stages you need to go through to get a credit card; each one takes a different length of time.

Applying for the card online, over the phone or in person is the fastest step. This usually takes around 15 minutes, provided you have all of your documents handy.

After submitting your application, it usually takes between one to 10 business days for the lender to assess your eligibility. Some lenders offer instant approval, although you will need to send supporting documents before it is official.

Once your application has been approved, expect to wait between one to 14 days to receive your card in the mail. Keep in mind that delays can happen during busy periods, such as if the lender has launched a special deal.

How do you apply for a credit card?

You can apply for a credit card online, over the phone or in person at the bank. Once you’ve compared the current credit card offers, the application process is quick and easy. Before you get your application started, you’ll need to gather your personal information like proof of ID, payslips and bank statements, proof of employment and details of your income, assets and liabilities. To be eligible for a credit card, you’ll need to be an Australian citizen over 18 and earn a minimum of $15,000 each year. Once you’ve applied for a credit card, you should get a response fairly instantly. If your credit card application has been approved, you should receive a welcome pack with your new credit card within 10-15 days.