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As we approach the end of the financial year, many of us are taking advantage of the mid-year sales. From small to big-ticket items being advertised at almost every shop and online, it’s hard not to take notice of all the appealing deals on offer.

While it’s smart to make your big item purchases, like furniture and appliances this time of the year, how you decide to pay for those items should be carefully considered.

Buy now, pay later’ (BNPL) services, such as Afterpay and Zip Pay are becoming wildly popular amongst many Australians, however, there are some things you should look out for if you’re planning on making your EOFY purchases through these type of services.

 

An ASIC review of the buy now, pay later industry found that 1 in 6 users had become overdrawn, delayed other bill payments or borrowed money so they could make their buy now, pay later payments.

 

You might impulse spend

Without paying a cent upfront for most Afterpay users, the 4-week instalment plan could lead to poor spending habits (if not used responsibly). For many who are on a tight budget or simply don’t have a budget plan in place, signing up to these types of services to fund your EOFY purchases could lead you further into the debt cycle.

 

Using your credit card for Afterpay could mean trouble

If you choose to link your credit card to your Afterpay account and repay only the minimum amount required on your card every month, the instalment you owe not only for the Afterpay purchases but also the interest charges from your credit card can easily build up and could snowball you further into debt.

 

You could be in financial stress

If you’ve signed up with multiple BNPL services (i.e. both Afterpay & Zip Pay) to fund your EOFY purchases, you could end up with instalment amounts across both platforms which can be hard to keep track of.

When the instalment due dates fall around the same time as your regular monthly payments (utility and mortgage repayments), you could struggle to have enough funds in your account to cover for all these expenses.

 

Afterpay will charge a late fee if you fail to make a payment or when there isn’t enough money in your nominated bank account to cover the payment.

 

Your credit health could be impacted

As not all BNPL services check your ability to make repayments, you could end up taking on more credit than you can afford and have trouble making your repayments on time, which in turn can have a negative impact on your credit health.

 

Afterpay reserves the right to report any negative activity on your Afterpay Account (including late payments, missed payments, defaults or chargebacks) to credit reporting agencies.

 

It could be hard to get approved for future loans

Discretionary spending is now being closely monitored by banks and lenders when assessing your credit application. If you have an existing Afterpay account and you’re planning to take out a loan, being committed to this service could potentially hurt your chances of getting approved.

 

Do you really need it?

This is the ultimate question you should be asking yourself and whether you can actually afford to pay it off (on top of your regular repayments) within the required timeframe.

Remember, the safest way to shop and to prevent the need or reliance on using a BNPL arrangement is to save upfront so that you only buy what you need and don’t end up spending beyond your means.

 

As always, Credit Savvy is here to help you access, track and monitor your credit score as well as help you make credit simple.

 

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