Buy Now, Pay Later services are soaring in popularity. With almost 30% of Australian adults having one or more of these accounts, why is this new form of payment so popular?
Known by some as the modern-day layby, or reverse layby, these services give you the ability to pay off items in instalments without being charged “interest”, but unlike layby, you can leave the store with your new item before you have paid it off. With today’s mentality of wanting everything instantly and the lure of “no interest”, you can see why many Australians are turning to these services to make their purchases when they are a little short on cash.
But if you think instant access and no interest sounds too good to be true, well then it probably is!
ASIC is reporting that one in six customers who pay via Afterpay and Zip Pay are in financial trouble, which could be anything from being overdrawn to delaying bill payment and even using the service to pay off other debt. And with as many as 60% of buy now, pay later account holders saying they use the service to buy items they wouldn’t usually purchase and 25% saying they hide these purchases from their friends and family, it is no wonder that the share price of companies like Afterpay is soaring.
So how do you avoid falling into the trap of using these payment services? My philosophy has always been, if you can’t afford to pay for an item up front, then don’t buy it! This goes for credit cards too. While it is tempting to purchase things now and pay for them later, spending beyond your means can get you into trouble with high interest rates and late payment penalties.
The best approach for making any purchase is to put the money aside, and when you saved enough to purchase the item, then go for it. This can be much more rewarding, as you feel like you have earned it, and it also means you have had time to think about whether this is something that you truly want or need, rather than an impulse purchase that you may regret later.
So, for those of us feeling the pinch after an expensive Christmas and New Year period, don’t be tempted to use a Buy Now, Pay Later service, or reach for your credit card. Instead, start the new year in a positive way; prioritise what is important to you and create a budget to match it.
Life is a series of trade-offs, and unfortunately, we can’t always have it all. So, by working out what is most important to you, you are able to prioritise your spending and create a budget that will work for you. And if you know you are an impulse buyer and will want to make last-minute purchases, then set money aside each month for just this, and you can spend knowing that you have the money to pay for it now.
If you’re ready to take control of your finances in 2020, come along to our free finance breakfast bootcamp. Hosted by Financial Planner, Emily Lanciana, this workshop will give you 12 easy steps to achieve your financial goals (without sacrificing the things you love). Register here.
General Advice warning
The information provided in this blog does not constitute ﬁnancial product advice. The information is of a general nature only and does not take into account your individual objectives, ﬁnancial situation or needs. It should not be used, relied upon, or treated as a substitute for speciﬁc professional advice. Apt Wealth Partners (AFSL 436121 ABN 49 159 583 847) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.