The dangers of using buy now, pay later on Black Friday & Cyber Monday sales
One of the biggest sale events of the year is here and it could be making a dent in your wallet. Countless retail stores across Australia and online merchants worldwide are expected to participate in this post-Thanksgiving activity and many are offering alternative payment methods such as buy now, pay later (BNPL) services to provide customers with a ‘frictionless’ shopping experience during this sale craze.
Before you hit that purchase button, ask yourself: Should I be using BNPL (such as Afterpay, ZipPay, Openpay, Oxipay or Certegy) on these Black Friday and Cyber Monday sales?
We explain the potential impacts BNPL could have on your finances:
You could be in for a serious debt hangover
For shoppers looking to save, Black Friday and Cyber Monday is a great time to score a better deal on big-ticket items and to also pick up affordable Christmas gifts. But, without having to pay the full item price upfront, opting for a BNPL arrangement could lead you to spend more. As no immediate lump sum is removed from your bank account, this could lead you to believe you have more funds to make additional purchases when in reality, you’ve already spent beyond your means.
Savvy Tip: Don’t bite off more than you can chew. Work out how much you can actually afford, create a shopping list and budget and do your best to stick to it. Opt to make payments in one go using a debit card or cash instead, so you’re less likely to overspend.
You might accidentally miss a payment
Overcommitting to multiple BNPL purchases at once can make you lose track of your finances and you might get haunted by late payment fees if you don’t pay extra attention to ensure you make your repayments on time.
Savvy Tip: Keep track of your BNPL splurges to help you organise your repayments and remember to set payment reminders so you don’t forget to pay during the silly season.
You could potentially hurt your credit reputation
Since BNPL services aren’t currently considered credit products, specific BNPL repayment history may not be recorded on your file. However, many BNPL providers reserve the right to undertake credit checks and report information (including late or missed payments, defaults or chargebacks) to credit reporting bodies.
Avoid linking your credit card to your BNPL account, as it may be difficult to manage both your BNPL and credit card repayments at the same time. If you miss one or two credit card repayments in the span of a 3 month period, it could decrease your credit score by up to 26%*.
Savvy Tip: A strong repayment history is a key component of a strong credit score, so make sure you have the ability to make your repayments without the need to use further credit.
Your mortgage application could be delayed or rejected
Planning on making your first home purchase in the next few months? You might want to stay away from using BNPL platforms as banks and mortgage lenders are now putting more focus on examining buyer’s spending habits. This extra line item listed under living expenses on your home loan application could potentially delay the approval process or even hurt your chances of getting approved.
Read more on how BNPL services could affect your home loan approval.
Want to learn more about how you could manage your finances more effectively? Head over to our Learning Hub to get the latest tips and tricks today.
*The Experian credit bureau research was based on a consumer research survey conducted in May 2019 using an online survey method. The survey was completed by 1,000 Australians representative of the nation as a whole aged 18 and over. Visit Experian for more information.