Use pay-later options to your advantage
There are a few things to know about pay-later options to make sure you can stay on top of your spending.
Pay-later options (sometimes called 'buy now, pay later', or BNPL) can be a helpful way to spread out the cost of something over time with no charges added on. It’s easy to pay a part up front, get the goods straight away, and then pay off the rest later. But are they just another way to get in trouble with debt?
How pay-later options work
“Buy now, pay later” options like Afterpay, Laybuy, Zip, Humm or Genoapay are popular with buyers and sellers alike. They’re offered online, as well as at smaller stores and the big familiar retail brands like Farmers, Freedom Furniture, Cotton On, The Warehouse and Briscoes. Here’s how they work:
- When you buy something, you pay a small part and the pay-later company pays the rest.
- You receive the item straight away.
- Then you pay the company back in instalments – typically three fortnightly repayments.
So for example, you might want to buy a $100 pair of shoes in a shop that offers Afterpay. You download the app in the store, enter your details, and are approved. You pay $25 up front, take the shoes home, then make three fortnightly repayments of $25 each.
If you miss a repayment because you don’t have enough funds in your bank account when Afterpay goes to deduct each $25, you are charged a penalty of $10.
Pay-later options are a kind of debt. They are a way of borrowing without interest or fees (the seller covers these costs). So while they are a no-cost way to borrow, having too many at once can be hard to keep track of and tricky to handle.
Have only one pay-later option going at a time to help keep track of your repayments and stay clear of late fees.
What’s the catch with pay-later options?
Going into debt is always a bit risky, since our circumstances might change and it becomes difficult to repay. Sometimes it’s hard to tell what might happen.
The aim is to avoid all late fees, otherwise we end up paying more for something than we intended to.
These penalties can end up as high as 25% of the original price – so that $1,000 flat screen could end up costing $1,250 if not repaid on time.
The other catch with pay-later options is that we can get “upsold” on buying more than we planned to.
For example, buying those $100 shoes and only having to pay $25 at first, it can feel like we can afford to spend more. Buying another $100 item with the same upfront $25 payment, for example, means that we will be out of pocket $200 in the end. Buying a third thing feels like we’re just spending $75 at the time, but we’ve just committed to paying $300.
Focus on the full price when you buy, even if you only need to pay much less at first.
