Warning issued for buy now, pay later' services

Afterpay is fast becoming one of the most popular ways for shoppers to buy now and pay later, but new research from RateCity warns the payment method can leave a nasty sting in the tail if you don’t make your repayments.

Consumers who used Afterpay to buy Christmas presents or in the Boxing Day sales will now be starting to make their first payments.

There are three main ways Afterpay can leave a nasty sting in the tail:

• Afterpay fees: up to $68 per item.
• Overdraft bank fees: up to $30 every time your balance falls below zero.
• Credit card interest of up to 24.99%.

RateCity money editor Sally Tindall said despite Afterpay’s popularity shoppers need to be cautious.

“Afterpay is it encourages impulse buying. It gives you instant gratification, even when you don’t have enough money in your bank account,” she said.

How Afterpay works

Afterpay lets you buy an item in store or online and pay it back in four installments over eight weeks, automatically deducted from your nominated transaction account or credit card.

Already ,1.1 million Australians have signed up to the service with this number set to increase significantly as the popularity of the service builds.

One of the key selling points for Afterpay is that there’s no additional costs if you pay on time, however there are late payment fees if you don’t make the repayments.

Afterpay fees:

If a payment bounces, you’re immediately charged a $10 fee, followed by a $7 late payment fee if you haven’t paid the installment within seven days.

If you miss all four repayments it will cost $68 in fees however Afterpay documents show the number of people who miss all four repayments is very low.

Overdraft bank fees and credit card interest

Eighty-five per cent of people use their debit card to make Afterpay instalments. The key is to make sure you have enough money in your account to cover the repayments.

Afterpay will send you reminders via text message to make sure you have enough money in your account, so make sure you check your bank balance as soon as you receive a reminder.

If your balance falls below zero, the majority of debit card providers will let you go into overdraft on your account. The good news is you will still make your Afterpay instalment and avoid their fees outlined above. The bad news is 65 per cent of transaction accounts slug you with a fee of up to $30 every time you do.

Using your credit card for Afterpay

Fifteen per cent of people use their credit card to cover Afterpay instalments. Putting your Afterpay repayments on credit can buy you some more time. It is, however, financially dangerous because you could end up paying up to 24.99 per cent interest on something that was meant to be interest free.

People who put their Afterpay purchases on their credit card must remember to pay their card off in full every month, otherwise they’ll be hit with interest charges as soon as the repayments are taken out.

TIPS FOR USING AFTERPAY

1. Before signing up to Afterpay, understand how it works and think about the consequences if you don’t have funds in your nominated account to clear it.
2. Find out from your bank to see if they will let you go into overdraft or in the case of your credit card, over the limit and what the penalties are for doing so.
3. Before making an Afterpay purchase, think carefully about how you will save enough money to make all four repayments.
4. Don’t impulse buy – delay any large purchases for at least 24 hours. If you still think it’s worth buying the next day then work out a way to pay for it.

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