Do the maths: Can you really handle pay later plans?

It’s easy to see why take-home now and Pay Later schemes have become so popular. They are easy to use, often with no credit checks, and give you access to almost everything. From fashion to whitegoods, the Pay Later ideology extends as far as that sunny vacation you’ve been wanting for oh-so long or the latest car in the shiny shopfront. Sounds great, right?

But as old sayings go, ‘nothing’s for nothing.’ There’s always a catch.

The Federal Government’s Australian Securities and Investment Commission (ASIC) has found 60 per cent of Buy Now Pay Later consumers are 18-34 years old, two in five earn under $40,000 and of these users, 40 per cent worked part-time or were students.

ASIC found as many as one in six Pay Later users had either become overdrawn, delayed paying their bills or borrowed more money.

Alas, ASIC said, most consumers believed these schemes also allowed them to buy more expensive items than they would otherwise have done, and to spend more than they normally would over time.

As a consuming nation, we’re at risk of getting hooked. And here comes the catch; Most Buy Now Pay Later providers do not check your ability to make repayments or credit history. This means consumers can easily take on more credit than they can repay and get caught on the debt treadmill.

It doesn’t end there. This can affect a borrower’s credit score as some schemes also report late payments to credit reporting agencies.

As ASIC recommends, always check the fine print – terms and conditions can vary between plans and do the maths. For example, if payment terms aren’t met and late fees are added, what are you going to be up for? How will these extra costs compound the debt problem? What about any monthly account-keeping fees, or does the plan carry payment processing fees too?

If you are still thinking of signing on to an instalment plan, here’s some tips from ASIC;
  • Plan ahead: Make sure you can afford full price and repayments fit into a budget.
  • Don't get into debt: Consider linking a pay later scheme to a debit card instead of a credit card. That way you're using your own money and avoid credit card interest.
  • Don't overcommit: Stick to a limit and aim to have only one pay later at a time.
  • Ask for help: If you're having trouble making repayments, contact a provider immediately.