Did you buy anything over the holidays on a buy now pay later plan? You’re not alone. The popularity of interest-free payment options like Afterpay, Openpay, ZipPay, Brighte and Certegy Ezi-Pay has exploded in Australia over the last year.
Once the domain of online retailers, the trend is set to grow with major retailers adding in store payment options to draw in even more shoppers.
Buy now pay later plans are a hybrid payment plan somewhere between a lay-by and credit card purchase. They are offered when you make a purchase either online or in store. They allow you to buy goods and services, receive them immediately and pay for the purchase over time via regular instalments.
They are like lay-by in that they allow you to split the purchase price of an item into smaller, more manageable repayments. Where they differ is when you can take your item home. With lay-by, you need to pay for the item in full before you can enjoy it. With buy now pay later, you can enjoy your purchase immediately and pay it off over time. It’s a small but important difference that can get impulse buyers into trouble.
Buy now pay later plans are also similar to credit cards in that if you miss a payment or don’t pay off the purchase in the agreed period you may be charged late and/or service fees. These are generally standard fees between $5 and $10 a month and may be recurring until you have made all the repayments. If you attach a credit card to a plan, you may have to pay interest to your credit card provider on the outstanding balance each month.
So far, providers have tended to focus on either small retail purchases or larger less frequent purchases.
For example, providers such as Afterpay and Zip money allow for small credit limits and are used mainly for purchases across fashion, hair and beauty, health and fitness, technology, books and toys.
Other providers such as Brighte and Certegy provide credit limits of up to $30,000. Brighte provides interest-free purchasing plans for solar panels and home improvements while Certegy covers a larger range of goods and services including pest control, plumbers, electricians and even plastic surgery.
Instead of using buy now pay later plans to make purchases, why not use your desired purchase as motivation to start a regular savings plan? You could save the same amount you would have made in repayments in a savings account and purchase the item later.
Not only will this help you make regular savings a habit, it will also provide an in-built cooling off period while you wait to make your purchase. Many ‘must have’ items become less important while you’re saving up for them. You might also find that you’re less inclined to spend the savings you’ve built up over time on impulse buys as you are more aware of the effort it takes to save that money.
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