The Truth About Buy Now Pay Later Schemes

Topics: Reading time: 4 minutes

If you’ve spent any time on an online checkout page recently, you’ve probably spotted some kind of buy now pay later service. These services are popping up left and right, and they’re becoming a staple of the online shopping experience.

Whether you were looking to buy a last-minute dress for your friend’s birthday or you found a must-have sale, it’s tempting to splurge on yourself from time to time. Plus, with a buy now pay later scheme, it’s now easier than ever to buy that shiny new thing.

In reality, buy now pay later services can be a slippery slope. If you’re not careful, you could find yourself dishing out much more than you were originally willing to pay. Let’s tackle the truth about these buy now pay later schemes so you can protect your wallet and your sanity.

What Is Buy Now Pay Later?

What exactly is a buy now pay later service? These are services offered by both retailers and third-party providers that allow you to buy a product immediately and delay payment. In many cases, you can also pay the product off in instalments over several weeks or over a long period of time.

Buy now pay later services are most often found with beauty and fashion products, but you might also see them with other things. Common buy now pay later service providers are:

  • Afterpay
  • Oxipay
  • Openpay
  • zipPay
  • Certegy Ezi-Pay

Retailers know that these services boost sales. According to a study using PayPal Credit, a similar third-party service popular in the United States, 30% of PayPay Credit buyers wouldn’t have been likely to buy without the 6-months-to-pay offer. In addition, 30% of PayPal Credit buyers spent more than they originally planned.

How Does Buy Now Pay Later Work?

When you use the buy now pay later service, you apply for a form of credit and set up a purchase plan through either the retail store’s website or the service provider’s application. You can even sometimes use these buy now pay later credit systems when shopping in-person.

In order to qualify, you’ll need to provide your bank or credit card details. This is how your payments will be deducted in the future. You might also need to pay a deposit for the first instalment up-front.

Most of these services advertise being “interest-free” or “0% interest,” but is that really true? The costs can add up quickly, especially in the form of late payments. That’s why it’s important to check the terms and conditions before you sign up.

The Problem With Buy Now Pay Later Schemes

These types of programs tap into instant gratification. You want to make your purchase now, and it’s that shiny object syndrome that drives people to purchase more than they can afford.

We can all agree it certainly makes those $400 pair of shoes feel much cheaper in the moment! Unlike traditional lay-bys where goods were only yours once you’d paid in full, those shoes will walk right out the door with you without making any payment.

While these payment options can be a sensible option for spreading payments and managing cash flow, the danger with buy now pay later schemes is there often isn’t a strict limit to how many orders you can have at one time. Lots of little payments can add up.

Many people report finding it hard to stay on top of their multiple payments, resulting in being caught short on cash for other important bills, like rent, the weekly grocery shop and utility bills. In addition, you’ll also be subject to some unexpected costs of these schemes:

  • Late fees – Every time you miss a payment, you can expect to pay a late fee.
  • Account-keeping fees – Despite that supposed 0% interest, you might need to pay what’s known as an “account-keeping fee,” or a fixed amount for every month you continue using a buy now pay later service.
  • Processing fee – You might have to pay a processing fee for each payment in addition to your set repayment.

How to Manage Buy Now Pay Later Payments

It’s important to stay in control whenever you buy now pay later. This is the best way to avoid a problem with your credit and not having enough funds to keep your payments on schedule. Here are some must-follow tips for staying in control with these types of services:

  • Set reminders – If you currently have multiple payments due, set reminders in your calendar about when they’re scheduled to be deducted from your account. We suggest putting these reminders in a few days before the actual payment occurs to give you some time to make sure you have money available.
  • Pay outstanding payments early – If you can afford to pay some of your purchases in full sooner, this will reduce your future payments plus help you feel more in control of your outstanding debt. However, always check to ensure there’s no prepayment fee.
  • Set clear rules – All things are good in moderation, which means controlling how you use buy now pay later schemes, not the other way around! Set yourself a monthly or fortnightly limit for how much you’re willing to have deducted from your account.
  • Be realistic – Ask yourself if you really need something before making a purchase. Could you recycle an outfit for that upcoming event? Will what you’re purchasing add value or spark joy in your life?

Ask for Expert Help with Your Budget

Financial freedom starts with taking positive action, but sometimes we all need a little help taking that first step. If you feel like you need some advice on how to best manage this process, there are experts who can assist. Bad credit problems from buy now pay later schemes are worth avoiding at all costs.

Whether that’s putting a budget in place or consolidating debt, our team at Debt Busters are ready to listen and help. We’ve been helping Australians break free from debt for over 10 years and we can help you too. You can reach us on 1300 368 322 or fill in the enquiry form below to arrange a callback.


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