With the Australian economy slowing down this year and household finances being tighter than they used to be, “Buy Now, Pay Later” (BNPL) services are a welcome trend for Aussies looking to manage their finances better.
In fact, BNPL platforms continue to rise in the country with as many as 30% of Australian adults having one or more Buy Now, Pay Later accounts — that’s roughly 5.8 million users.
But how exactly does the BNPL service work? How is this payment model different from other financing options? And what challenges do BNPL services present for consumers?
What Is “Buy Now, Pay Later” And How Does It Work?
“Buy now, pay later” is a payment service that allows you to buy and own items and pay them off later. The service is usually offered through online stores or in-store as a payment option upon checkout.
This option comes in handy when you don’t have the cash upfront or you are caught needing something before payday. You can delay or stretch out payments in instalments (some that are interest-free) so they’re more manageable.
For example, instead of paying $500 upfront for a brand-new phone, you can choose to pay $125 every fortnight over 8 weeks. Depending on the store or the BNPL provider, you may need to pay either a deposit or the first instalment upfront.
As with all payment services, the idea of delayed payments shouldn’t drive you to spend more than what you actually need. Be a responsible buyer and make timely payments so you stay debt-free!
The Challenge With Certain “Buy Now, Pay Later” Options
Despite some advantages in the short term, most BNPL services come with a range of risks. If you are using or planning to use BNPL as a way to finance your next purchase, there are a few things you should be aware of.
High payments over a few short weeks
The premise of buying now and paying later is having the option to stretch out your payment period when you don’t have the cash up-front.
When you’re locked into fixed instalments, the larger your purchase, the higher the repayment you’ll need to make over your allocated time period.
If you’re uncertain about the future state of your finances, this can become a problem. You need to ensure you can commit to these short-term payments diligently, or you bear the brunt of late fees from the BNPL provider.
Not regulated by the National Credit Code
Many Buy Now, Pay Later providers are not regulated by the National Credit Code. That means these platforms do not check your ability to make repayments when you sign up and can leave you taking on more credit than you can actually afford. Over time, this can become a serious challenge, leaving you in a debt spiral.
Debt spiral if you can’t keep up with repayments
Instant gratification for the things you want now and the ability to purchase items you normally wouldn’t can lead to an increase in overspending and problems with meeting payments.
Mozo reports that 28% of Australian consumers have found themselves in financial strife due to BNPL platforms. One in six BNPL customers have also been found to be in arrears on their accounts.
In fact, Afterpay has reported $18.2 million in late fees from their customers, which is 17% of their total revenue. This overspending and a further increase in household debt are the reasons why there have been calls for tougher controls and regulation for BNPL services.
What’s more, to keep up you may be tempted to open two or more payment plans like many other Australians. Managing multiple repayment schedules poses a serious risk to your cash flow, along with additional fees and charges.
Remember that while having the items you want on hand right away is exciting, “Buy Now, Pay Later” is still a financial liability. So before applying, you need to be clear about your ability to pay off these instalments quickly and in a timely manner.
Why Gimmie Is A Better Payment Plan
Unlike some BNPL providers, Gimmie is regulated by the National Credit Code, which means we take responsibility to check if you can afford your repayments and prevent you from taking on more debt than you can handle.
Whilst other BNPL providers will lock you in to payment plans and additional fees, Gimmie gives you the flexibility to pay out early and pay less. You simply sign up to Gimmie’s 1 or 2 year payment plan but have the option to exercise Gimmie’s 90DayPay, allowing you to pay back your purchase in full in 90 days from the date of purchase, and only pay the original cash price. No interest and no early exit fees within 90 days.
Sound exciting? If you’re looking to still enjoy the benefits of other BNPL services without the risk of over-committing to payments you cannot afford, hidden charges and fees, Gimmie is a smart choice.
The fair and flexible way to buy now and pay later. Find out more with Gimmie.