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.
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.
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.