The ‘buy now pay later’ (BNPL) sector is promising safeguards for ‘vulnerable’ customers, but a local financial advisor suggests residents should avoid the concept altogether.
Known as the ‘modern lay-by’ BNPL sites like Afterpay have taken the world by storm, with an estimated 30 per cent of Australian adults now using the services.
The service allows people to buy a product today, and pay it off over instalments.
Due to the accessibility of such schemes, research shows an alarming trend of younger Australians relying on a BNPL service to manage their finances.
But when does spending money you don’t have get dangerous?
Finance expert and owner of Future Financial Services Alex McKenzie sees many cases of financial strife in the Penrith community and said while safeguards are a step in the right direction, you have to be smart about the way you use such services.
“The problem with things like Afterpay is you’re spending money you don’t have and that’s a debt cycle you play of catching up, which can lead to additional issues. It’s a bad habit to get into,” he said.
“Another thing is it is heavily frowned upon by the banks when you’re looking to get a loan later down the track.”
The Australian Financial Industry Association announced the new Buy Now Pay Later Code of Practice after pressure was put on the sector by the Australian Securities and Investments Commission (ASIC).
Some of the suggested safeguards including capping fees and assessing customers’ repayment eligibility.
Mr McKenzie believes capping fees is great for helping to protect the most vulnerable but said people can avoid entering a ‘debt trap’ with controlled spending and budgeting.
“When it comes to debt resolution what we do is look at minimising spending to ensure people are living within their means,” he said.
“Afterpay is just the new method of spending, previously it was the credit card or personal loan but they are just the same concept, making it more accessible for people to spend money that they don’t have.”
The BNPL market has commenced public consultation and is seeking to implement a Code of Practice in mid-2020.
The Code of Practice will also look to better complaint resolution and consumer rights.
A graduate of Western Sydney University, Nicola Barton is a news journalist with the Western Weekender, primarily covering crime and politics.