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The truth about buy-now pay-later services

understanding afterpay imageIt’s no surprise that these ‘buy now, pay later’ services have made a name for themselves. They offer an attractive option for those who want to buy that must-have item now, even if they currently don’t have the funds to purchase it. Convenient as it may seem, it is important to remember that it is still a line of credit that you must repay. It is a line of credit which can potentially overwhelm many people who may not be prepared for repayments and potential fees they could incur.

Afterpay and many other similar services will not charge you interest so long as you meet your repayments on time. However, there is the danger of not identifying these services as a type of loan service, which can lead people into debt.

What is Afterpay?

Afterpay offers a line of credit for purchases at partnered online and retail outlets. This line of credit doesn’t incur interest, but it can incur late fees.

How does Afterpay work?

You can use Afterpay at compatible retailers to pay for an item online or in-store with the barcode feature. By selecting the Afterpay option, you can pay off your purchased item(s) in 4 instalments over 8 weeks, rather than paying for the items with just one instalment. You will still pay the total amount for the item(s) at the end of the repayment schedule, but you will need to pay more if any of your scheduled repayments are late.

What are the risks with Afterpay?

It is important to monitor how this digital form of credit affects your spending habits and savings. You could potentially purchase numerous items on Afterpay and in the following months, find it impossible to meet each repayment.

Staying on top of the increments you need to pay means you can avoid getting into debt. If you miss repayments for one or more items you have purchased with Afterpay, you could collect unanticipated debt.

What's the deal with the other 'buy now, pay later' services?

Some other ‘buy now, pay later’ services popular in Australia are Zip Pay, PayRight, Openpay, and Certegy Ezi-Pay. Here is a breakdown of these other ‘buy now, pay later’ services*:

  • Zip Pay: Offers up to $1,000 credit, but you must pay a $6 monthly fee and after 60 days you are required to repay a minimum of $40 in monthly repayments.
  • PayRight: Requires you to pay an initial deposit, with the remaining balance direct debited as monthly repayments. You will be required to pay an establishment fee of $59.95, a monthly account keeping fee of $3.50 and a $2.95 processing fee for each payment. You can also incur a late payment fee of $12.95 if you do not repay on time.
  • Openpay: For this provider, you make repayments fortnightly. You may incur some small processing fees and you will be required to pay late fees if you do not meet repayment terms.
  • Oxipay: You can elect to repay your borrowed amount in 8 weekly payments or 4 fortnightly repayments. You can also shop in-store with compatible retailers, while late fees do apply for those who miss scheduled repayments. Your spending limit for Oxipay can also increase as they get more familiar with your purchasing and repayment history.
  • Certegy Ezi-Pay: Certegy Ezi Pay charges no interest, but it does have varying establishment fees between $35-$90, (depending on what you buy). There’s also a monthly account keeping fee of $3.50 and a fortnightly payment processing fee of $2.95.
* We recommend researching the latest terms and conditions for each service as they may change.

Are these services required to run credit checks?

Most ‘buy now, pay later’ services do not have to run credit checks on customers. However, many do reserve the right to request credit reports on customers if it is stipulated in their terms and conditions. Credit checks are conducted by financial institutions to follow responsible lending regulations. This is done to avoid lending to anyone who has accumulated excessive debt or struggles to make their repayments, getting into more debt. Without proper credit checks in place, all responsibility falls off the lender and onto the borrower, who may not be equipped to meet repayments.

Whether you’re signing up for a credit card or taking out a loan, the financial services industries have long been held to codes of conducts and regulations in order to protect applicants. With shoppers now using Afterpay to purchase non-essential items, it can be easy for them to unwittingly increase their debt. | Greater Bank

For example, if someone had credit card bills to pay and couldn’t afford the latest smartwatch, purchasing the item with Afterpay could put them into further debt down the track.  

Can 'buy now, pay later' services affect your credit score?

Unlike paying off a loan or credit card bills, ‘buy now, pay later’ services cannot improve your credit score. However, they do have the potential to do damage to your credit score. If you do not meet your repayment schedule, a ‘buy now, pay later’ service reserves the right to report negative activity to credit rating agencies, which could result in a black mark on your record. This could affect your ability to get a good rate or take out future home loans, car loans or personal loans. Therefore, it is important to stay on top of repayments for ‘buy now, pay later’ services.

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