Remember the good old lay-by days? When you couldn’t pick up your purchase until you’d paid off all your purchases? Well, now there is a digital payment app called Afterpay, which has been increasing in popularity amongst millennial shoppers and big-name retailers and has been described as the “modern day lay-by.” The only difference – Customers can take home their goods immediately, instead of having to wait until paying off all the instalments – A little scary, right?
As you can likely imagine, consumer advocates have warned that Afterpay promotes irresponsible spending with its “Shop Now. Take Now. Pay it in 4.” marketing proposition. What makes matters even worse, is that this is all happening during a time where the retail industry is trying to boost sales and Australian consumers are trying to pay off record levels of household debt.
So, what exactly is Afterpay? How does it work? And is it a danger to our financial health?
What is Afterpay and how does it work?
Afterpay is a digital service, fully integrated with all your favourite shops, allowing you to shop as usual, then choose Afterpay as your payment method to check out. Afterpay then splits your payments over four equal instalments due every fortnight. Unlike lay-by, you’ll receive your purchase right away, even before all your instalments have been paid.
Afterpay is currently offered by 7,500 retailers and as of September 2017, was used to make $560 million in purchases by more than 1 million consumers – that’s a lot of people paying after! Dissimilar to other credit options, there are no lengthy processes or wait times or credit checks and approval is almost instant. Meaning that existing debt or serious financial hardship aren’t even taken into consideration – Scary, right?!
Is Afterpay helpful or harmful to our financial health?
So, is it a danger to our financial health? Potentially, yes. Consumer advocates are expecting to see more people seeking their services with debt issues related to Afterpay. The Consumer Action Law Centre’s senior policy officer Katherine Temple said, “There is a risk of services like Afterpay leading people to having more debt than they can handle.”
Afterpay claims it is not a credit product, as it doesn’t charge interest – We beg to differ. Although, unlike other creditors, Afterpay doesn’t charge interest, missing an instalment results in a $10 fee and failing to make the repayment within a week, will incur a further $7 fee. Missing all four instalments, has the potential to set you back an addition $68! This, along with retailer fees, is how Afterpay make their millions. And according to the terms and conditions, Afterpay has the right to sell any unpaid debt to “third party collections agencies.” So, we wouldn’t be skipping payments if we were you!
What do we say about Afterpay? Buyers beware and buy with care.
At Life After Debt®, we can help you reduce unmanageable debt by offering you affordable, practical debt solutions that are proven to relieve hardship.
Contact us today to receive honest and sympathetic advice, without judgement.