With ‘buy now, pay later’ schemes and interest-free deals becoming increasingly popular with Australian shoppers and big-name retailers, there has never been more temptation at the checkout.
While these payment options are giving every day Aussies the chance to buy the items that they want and pay them off over time, some of the deals on offer come with hidden drawbacks which are catching consumers out.
In this post we consider the deals that are on offer and how to avoid the hidden pitfalls.
Buy now, pay later
By now you’ve probably heard of ‘buy now, pay later’ schemes such as Afterpay and zipPay which allow you to purchase products immediately and delay the payment.
Paying for items this way will mean that you’ll be required to pay either a deposit or the first instalment up-front, and pay the rest over a set amount of time. While these schemes do not charge interest, they can cost you if you can’t meet the set repayments, so it pays to check the fees and charges before you sign up.
‘Buy now, pay later’ schemes work for people who don’t want to part with their cash up front and can easily make the set instalments. The main issue with these schemes is that individuals can easily overcommit to large purchases, meaning that there’s more of a chance of overspending on unnecessary items. In addition, often these arrangements do not involve a credit check which means there is no check to see if the commitment suits your current financial situation.
Remember: Although ‘buy now, pay later’ schemes are generally short term arrangements, if you apply for a loan while you’re still paying one off, your lender will take your repayments into consideration which could affect your borrowing power.
No deposit, no-interest deals are very different to ‘buy now, pay later’ schemes such as Afterpay.
The main difference is that with interest- free deals you sign up for a credit card which pays for the balance of your purchase.
While you won’t be charged any interest on the credit card initially, there’s a good chance you’ll be stung with a high interest rate later on. This generally happens when you only pay the minimum monthly repayment on the card, meaning that the item is not paid off when the interest free period expires.
Another trap that customers can fall into is increasing the limit on the credit card and keeping it open once the original purchase is paid off. You don’t want to be tempted to use the card for general use and rack up a large credit card bill later down the track.
Lastly, interest free deals often have ongoing fees and charges which can really add up over time. To avoid fee shock read the terms and conditions prior to signing up.
Weighing it all up
At the end of the day it’s probably best to save for the item up front so you don’t end up spending beyond your means. But if you want to commit to a ‘buy now, pay later’ arrangement or interest-free deal, make sure you stay on top of your repayments and read the fine print.
If you’ve signed up for an interest-free deal and are now struggling to pay off the credit card, be sure to check out our advice to help you get rid of it for good.
This blog post is for general information purposes only and is not intended as financial or professional advice. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product or other professional advice. You should seek your own independent financial, legal and taxation advice before making any decision about any action in relation to the material in this article.
Railways Credit Union trading as MOVE ABN 91 087 651 090. AFSL/ Australian Credit License number 234 536 | ABN 91 087 651 090