Australians are being urged to set spending limits when using buy-now-pay-later platforms, after research found nearly one in three users found themselves in financial trouble.
Comparison website RateCity found 28 per cent of buy-now-pay-later (BNPL) users surveyed encountered financial difficulties directly related to their spending.
Sixteen per cent said they overstretched their budgets when using BNPL services, while 14 per cent had to pay a late fee.
And 9 per cent said they dipped into their bank account overdraft.
According to RateCity’s findings, not only do BNPL platforms increase money woes, they also encourage greater impulse spending, with more than half of users saying they were more likely to make an unplanned purchase.
RateCity research director Sally Tindall said although BNPL has helped customers access previously unattainable goods, it can easily create a “sinkhole” in household budgets.
“People with a number of purchases on the go across several platforms risk losing track of their repayments,” Ms Tindall said.
“It can easily translate into multiple late fines and, in some cases, overdrawn fees from your bank.”
Ms Tindall warned that excessive BNPL usage could also show up as a “red flag” in credit reports, which may prompt banks to lower the amount they are willing to let households borrow.
That same concern is reflected on ASIC’s MoneySmart website, which advises that making late BNPL repayments can “affect your ability to borrow money in the future”.
And it follows concerns raised by Commonwealth Bank CEO Matt Comyn during a parliamentary hearing last week.
“Even though it is not referred to as credit, it certainly looks a lot like credit to me,” he said.
Centaur Financial Services principal adviser Hugh Robertson told The New Daily that BNPL products can create bad money habits that become difficult to shake.
Mr Robertson said these services facilitate “instant gratification” and can discourage consumers from deferring consumption, which could lead to lower levels of savings, extra repayments on loans and voluntary contributions to superannuation.
But consumers can use a simple method to take control.
“It’s like credit cards – if you use cards and never pay interest because you use the card, get the points but make repayments within the interest cycle, you’ve beaten the card at its own game,” Mr Robertson said.
“So No.1 is to do your research, find out whether the product is on sale in retail stores or online, then calculate how much you will pay in every instalment to see whether you can actually afford to pay that amount and track it in your budget.”
RateCity’s tips for using BNPL
- “Read the terms and conditions
- “Set yourself strict spending limits
- “Don’t impulse buy
- “If you get into trouble, pull the pin.”