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Senate Inquiry calls for greater buy now pay later regulation

Senate Inquiry calls for greater buy now pay later regulation

RateCity.com.au welcomes a Senate report released in February, which in part looked at buy now pay later schemes.

Two of the key recommendations from the Senate report into credit and financial services targeted at Australians at risk of financial hardship was for an appropriate framework to regulate the emerging sector and an industry code of practice.

RateCity.com.au research director Sally Tindall said “With over 2.5 million active buy now pay later customers in Australia, a figure which is growing by thousands daily, the question of what regulation the industry needs is becoming increasingly important.

“Last year, ASIC found that one in six buy now pay later users have come into financial difficulties because of the service including becoming overdrawn or needing to borrow additional money to meet their payments.

“With this in mind, any regulation should ensure anyone signing up to these services has a clear understanding of the terms and conditions.

“While Afterpay is destined to be a school of hard knocks for many young people discovering credit for the first time, in many ways it can be safer option than a credit card.

“Unlike a credit card, Afterpay requires you to pay back the full amount in 8 weeks and it freezes your account as soon as you miss a payment.


Be aware


 No interest charges.

 No fees if you pay on-time.

 Won’t let you get into excess debt. Accounts are capped at $2K.

 Sign up in less than 2 minutes.

Use online or in-store but only at participating retailers.

  Late fees of up to $68 per item (capped at 25%).

  Impulse spending. 55% of users spend more because of these services (ASIC).

 You could go into overdraft if you don’t have enough money in your account.

 It could affect your ability to get a home loan.


Be aware


 Accepted worldwide in store, online and over the phone.

Offers perks incl. rewards points and cashback.

Offers insurance and fraud protection.

 Can use it to pay bills and buy essential items.

86% of cards charge an annual fee.

Interest charges as high as 24.99% which can kick in from day one if you have a balance outstanding;

Credit card companies never force you to pay your debt in full, so you could get trapped in a debt cycle.

High credit card limits can affect applications for other credit products such as a home loan.

Tips when using buy now, pay later platforms like Afterpay

  • Keep track of your purchases: If you find yourself going down an Afterpay rabbit hole, limit yourself to only one buy-now-pay-later purchase at any given time.
  • Don’t overspend: You’ll need enough money in your account to clear each installment: It’s an automatic deduction so it’s going to happen whether you like it or not. Plenty of accounts will let you go into overdraft and sting you with even bigger fees.
  • Don’t impulse buy. ASIC found 55% of people spent more using buy now, pay later services. If you see something you like the look of, sleep on it, before you commit to buying it.

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Fact Checked -

This article was reviewed by Property & Personal Finance Writer Nick Bendel before it was published as part of RateCity's Fact Check process.



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Learn more about credit cards

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.

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 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 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.