The smart way to use Afterpay

Afterpay is just one of many ‘buy now, pay later’ payment options that shoppers have embraced with gusto. Others include zipPay, Certegy Ezi-Pay, Oxipay, BrightePay and Openpay. Used well and they can be a useful way to keep your money in your pocket for longer. Used poorly and you could find yourself in a whole world of financial pain.  Be under no illusion, ‘buy now, pay later’ is a euphemism for debt and like all debts, these payment options need to be carefully managed.

How does Afterpay work?

Afterpay is a buy now pay later service offered by online and in-store retailers, that allows you to spread the cost of your purchase over 4 equal fortnightly instalments.

You’ll need to set up an Afterpay account, either online or via an app. You enter personal details, verify your identity with your driver’s licence or Medicare card, and provide your bank or credit card details for payments to be deducted.

What are the benefits of Afterpay?

Buy now pay later services allow you to manage your budget by spreading larger repayments out over time.

If you earn interest on your savings, your money will stay in your account earning interest for longer. Nominating a credit card as your payment method, providing you pay your credit card balance in full each month, may give you even longer to pay.

Getting into trouble with Afterpay

According to a recent Australian Securities & Investments Commission (ASIC) report into Afterpay and five other buy now pay later providers – late fees made up approximately 12% of their $78M of revenue in the June 2018 quarter.  This indicates that lots of people are not managing their purchases well and that they are paying a lot of unnecessary fees as a result.

Because you don’t have to pay for items upfront, it’s very easy to splash out on things you don’t really need, and can’t really afford.

If you don’t make your repayments on time you’ll pay late fees and could also be hit with bank dishonour fees. You may also be reported to a credit reporting agency, which means missing a payment could have a negative impact on your credit score and limit your ability to obtain other forms or credit, such as a personal loan or mortgage.

If you’ve made multiple purchases, you’ll need to track your repayment schedules diligently. Your fortnightly repayments probably won’t nicely align to your pay day.

If you have nominated a credit card as your payment method and you don’t pay the card off in full by the due date, you’ll pay interest on the remaining balance, which further increases your costs.

Stay in control of your finances

Rather than using buy now, pay later options you could consider simply saving and avoid debt altogether for consumer purchases. If you do opt to use Afterpay or a similar service here are some tips to help you keep control:

• Plan ahead to make sure the repayments are within your budget.
• Keep track of when each repayment is due. Try setting reminders on your phone, in your calendar or diary or by creating a simple spreadsheet.
• Don’t get into debt. If you don’t pay your credit card in full each month, use a debit card instead, so you are using your own money and avoid paying credit card interest.
• Stop spending if things start to get out of hand, concentrate on paying all of your existing purchases off before committing to any more.
• Asking for help straight away if you are having trouble making repayments, before a little problem becomes a big one.

Used wisely, Afterpay can be a way to spread the cost of purchases out over time. Just don’t commit yourself to more that what you can actually afford, and stay on top of your repayment schedules.