The Christmas Crunch: Don’t Pay Later

With Christmas only weeks away, we asked ICAN Financial Counsellor Yvette Taylor about the reality of using Buy Now Pay Later (BNPL) services.

Many BNPL advertise their services as having no interest or charges. Does this mean you only pay back what you borrow? 

In one word – No!  It doesn’t mean there is no interest or charges, as all BNPL services have different fee structures. For example, Afterpay will charge you an $8.00 late fee every time you miss a payment. There are also hidden fees like the retailer’s costs for offering the service, which is ultimately passed onto the customer. 

In 2020 ASIC reported that one in five people using BNPL services missed making their payments. What does this mean for people that can’t pay on time? 

Generally, late payment charges are anywhere between $5 and $15 each.  Unfortunately, it’s not unusual for people to end up with 6 or 7 separate BNPL accounts, so fees can quickly add up and become unmanageable.

BNPL companies are making a profit at the expense of some people, especially those that find themselves in a debt trap and unable to pay for essentials, like food and rent. You can find yourself borrowing even more money to manage your expenses and then find yourself struggling to make the next payment, as well as the growing debt. People can quickly find themselves in a debt spiral, especially when unexpected costs arise.

Are there any caps on fees? 

There are no caps on fees. Some companies hit you up with monthly account keeping fees, others charge you every time you make a payment, and others make you pay an establishment fee. Make sure you do your research and check the terms and conditions before you even consider signing up. 

What is the difference between BNPL services and credit cards? 

The difference is that companies that issue credit cards have legal obligations under the National Consumer Credit Protection Act 2009. For example, they have to make sure you can afford the loan, whereas BNPL services do not have the same obligations.

BNPL services are not going to disappear, so it is imperative that people understand the different ways they operate and how to make decisions based on this information. Knowledge is power.

Can BNPL services automatically deduct repayments from your bank account, even if you cannot afford it? 

Yes, they can. People also need to be aware that if there’s not enough money in their account to cover their payment, they can end up with the bank charging them a direct debit dishonour fee on top of the late fee that the BNPL charges.  So, the next time money gets deposited into their account, the amount owing will still be automatically deducted.

What would you say to anyone considering using BNPL services, especially with Christmas coming up? 

You might end up paying three times the actual value of the item with BNPL, so think carefully about whether it’s worth it. Remember, if it is too easy, think again.  Old school Layby is a better alternative that lets you pay things off without racking up interest and charges. 

Also, if you are thinking of getting a bank loan sometime in the future for a car or buying a house, late payments can end up on your credit report, affecting your ability to borrow. 

If you do end up using BNPL, have a spend limit and only ever have one account.

Just remember – eventually, you will have to pay.