The dangers of using Afterpay and ZipPay to fund Christmas
Karen Cox of the Financial Rights Legal Center warns of the dangers of “buy now, pay later” (BNPL) loans and why they should be avoided this holiday season.
Most of us know what “jet lag” feels like – like being one of the walking dead after a long distance flight.
A more serious holiday hangover is happening for thousands of Australians – the “debt delay”. This happens when normal Christmas, vacation, and housekeeping bills come due at around the same time. Unlike jet lag, the “debt lag” can last for months or even years.
Christmas is a great time of year, but the preparation can be stressful. There is pressure to buy thoughtful gifts for friends and family, to make Christmas Day memorable, and to organize a relaxing summer vacation to recharge your batteries (and maybe those of your partner and family. ).
Under pressure, we can all make bad decisions.
Many of us are so strapped for cash that we struggle to fund our Christmas and our vacations. Australians are increasingly turning to “buy now, pay later” (BNPL) financing (like Afterpay, ZipPay, Openpay or Hmmm).
Under pressure we can all make bad decisions
BNPL services are available for almost anything you can buy to eat, watch, or wear in a mall or department store.
And that’s just the beginning. BNPL programs allow you to buy everything from Christmas baskets to flights, hotels, Botox, surf lessons and dental care, all without paying a dime up front.
Too many credit options
The credit options available this year are mind-boggling and alarming. I say this because the financial advisers at the National Debt Helpline are already overwhelmed to help people who abuse credit they should never have had access to.
We’re not saying people should avoid BNPL’s services altogether – used with care, they can help people manage their finances. But we say avoid them as a major payment method, and we encourage people not to go overboard. Unfortunately, it is common for people to fall into debt spirals that are hard to escape – all because they are trying to buy a nice Christmas and a relaxing vacation.
Avoid using buy now, pay later as the primary payment method.
Daily credit risks
Payday loans and BNPL services are not meant for everyday life and certainly not to make us miserable. Credit is typically designed for capacity building (to help with wealth creation) or when we need to generate money quickly (such as in an emergency).
Credit cards have become everyday payment options – to the detriment of many people, we would say. ABC research showed that if a card user made only the minimum repayments on a $ 2,000 card debt, it would take 17 years to pay off.
It’s not hard to see what happens next if that person adds repayments from a payday loan or multiple gifts purchased with BNPL – especially if they’re directed to their card. Too much finance your Christmas and / or vacation with any type of credit, let alone a combination of credit options, is a debt crisis that’s waiting to happen.
Escape the financial quicksand
Financial distress is like quicksand: people are struggling to repay and pay penalties, so they are looking for faster but more expensive solutions to short-term cash flow problems.
In our experience, people who turn to payday loans for everyday expenses often take out one and then another.
It is also common for our financial advisors to find that payday lenders sign contracts with borrowers without properly assessing their ability to repay debt.
Financing your Christmas and / or vacation too much with any type of credit … is a debt crisis that’s waiting to happen
This is also a problem with BNPL programs – because the programs do not charge interest per se, but they are not regulated and do not always check if you can afford to put dozens of big ticket items on their plans. payment. Some allow consumers to purchase goods and services up to $ 30,000!
It’s no surprise that BNPL operators make about a quarter of their income from late fees – which means they wouldn’t be profitable without relying on your missing payments. Let that sink in for a moment …
Target vulnerable people
Time and time again, we see credit targeting low-income people and students – the very people who are tempted to use it for everyday expenses. Research from various sources in 2015 showed that the average income of payday borrowers ($ 35,702) was less than half the full-time income of the average Australian ($ 75,603).
So until better regulation is in place, it boils down to this: who will protect your financial health if it’s not a priority for lenders, or even in their best interests?
It comes back to you.
What is really of value?
Before you take out a payday loan or use Afterpay or ZipPay for the sixth time, take a deep breath and ask yourself if you really need – or just want – that pair of shoes, swimsuits, hotel chic. , rental car or that extra gift. Can you really afford everything, especially after the electricity bill hits in January?
Higher price tags and more “stuff” have little to do with good memories
And maybe take a break to think about what you really want from Christmas and the holidays. For most of us, it’s about resting and sharing good times with family and friends. Higher price tags and more “stuff” have little to do with fond memories.
DISCLAIMER: This article was written for choice.com.au by the Financial Rights Legal Center.