The Issue with Buy Now Pay Later Schemes - Is There Really an Issue?

doobey1231 on 15/03/2024 - 10:48

Hey all

Just wanting to get your opinions on buy now pay later schemes. Ill preface this by saying that no credit cards AND no BNPL debt will always be the ideal situation, but this is about borrowing money.

We were lectured all day every day when they first rose to fame in the beginning, how they were bad practice allowing loans without credit checks etc. Since then the industry has cracked down on them pretty hard and I have to say, for a small loan system they actually seem to be one of the best options out there. $600 maximum with afterpay when you begin, $3000 is the absolute maximum overall which is significantly less than what a bank would be willing to offer a 20 something year old with a part time job.. Even though those credit checks are required, the bank is still significantly more "generous" with its card limits, then on top of that you pile on monthly interest rate as well, you can quickly find yourself in heavy debt and no way out, basically treading water.

I am just curious on everyone elses thoughts on this situation because it was drilled into us in the beginning that BNPL schemes were the devils invention, but based on what I know about both, its the lesser of two evils against credit cards and I do believe they have their place.

Also this is my own personal experience so take with a grain of salt here - but when I spoke to a mortgage broker he asked about debts, I mentioned my amex and afterpay accounts. He said to put it simply you just put down the amount owned on after pay as "other debt" and just the gross amount is taken into account. Whereas just having the credit card(paid off monthly) shaved a whopping 150k off our borrowing amount, even though the amex shows an impeccable record. - not to dig into my personal finances too much, but this is my real world example of credit cards being vastly more damaging to your financial future than BNPL could be.

Opinions? does BNPL deserve the hate it gets?

Financial Buy Now Pay Later

Comments

  • Hybroid on 15/03/2024 - 10:55
    +9

    It's horses for courses really. I don't have a credit card by choice and rarely use AfterPay personally.

    The rare example it made sense for me was buying a $2k electric bike. I had the funds to pay it off in one go, but thought why not do $500 a fortnight instead. No cost difference to me and it's automated payment so no late fees. That takes a bit of wallet pressure of larger purchases to use the funds elsewhere, especially as you get a salary payment half-way through.

    Those kind of scenarios make sense to me. I wouldn't be buying items I couldn't pay off completely straight away though.

  • mskeggs on 15/03/2024 - 10:58

    Seems as though you are looking at the best way to get credit.
    The downside of bnpl is it exposes many people to fees and charges of credit without the process you go through as a applicant for a credit card - and without the consideration you would make about your own responsibility and ability to repay etc.

    I'd suggest avoiding credit cards if you are at the margins of affordability for a mortgage. If the cashflow benefits are useful, get an Amex charge card.
    If you are in the situation where using a couple of hundred dollars on any sort of credit is necessary to buy things, probably best to spend the time and effort on budgets and saving rather than how to get little dribbles of credit without impacting borrowing power.

    • doobey1231 on 15/03/2024 - 11:18
      +1

      Seems as though you are looking at the best way to get credit.

      Nope, just want to have the discussion because its always mentioned on afterpay sales posts and the like. I have my finances pretty much sorted out. As mentioned I already have an amex and afterpay - I don't have to cancel my afterpay account to get an extra 150k on my max mortgage amount.

      The downside of bnpl is it exposes many people to fees and charges of credit without the process you go through as a applicant for a credit card

      Can you explain what fees? Because I use afterpay as my main source and the only fees that apply is a flat fee for late payment of about $10, if you pay ontime or before time there are no fees associated and you are only paying what you borrowed in the first place, thats one of the points that makes it superior to a credit card in one way.

  • AustriaBargain on 15/03/2024 - 10:59
    +4

    I have no problem with it, especially afterpay who has no fees if paid on time, and have lowered their fees after criticisms. Buying things now and paying later is a convenience enjoyed by credit card owners for decades now and BNPL lets anyone do it. Afterpay is so ubiquitous that you'll probably find the cheapest vendor selling any particular item will offer Afterpay too.

  • tebbybabes on 15/03/2024 - 11:00
    +1

    I have no idea about CC being such a liability on borrowing amounts.. No wonder the loan officer asked us if we were willing to close the CC account. Considering we were always zero balanced every month - that struck me a strange. Now it makes more sense after what you mentioned.

    Anyway, back to your question, I've always considered BNPL as just another tool. I've also used it a handful of times - especially if it was coming out cheaper than paying for it on any other method. Just like any tool, there are ways to use it safely as well as ways to do it incorrectly.

    As an aside, one of the memorable instances that I used BNPL was because I was irked that almost any way the seller/service provider had of accepted payment incurred fees and charges. I found out that if I did it via BPNL it was computed at the base amount. So I did that.

    • doobey1231 on 15/03/2024 - 11:22
      +4

      Its quite amazing isn't it, I even asked the broker directly - even though its completely paid off every month and only used for immediate necessities(think hot water tank kicking the bucket) and he said as long as you have the ability to spend 10k on a credit card the banks see you as a liability.

      I see it the same way, its just another tool, if used properly can be great, and if mistreated it can be bad. I just think its the most unfairly looked at because even at a maxed out account the most damage you can do is $3000 in base debt and a hundred odd bucks a fortnight in late payment fees - thats if you just sat and did nothing to rectify the problem. A credit card could see you absolutely drowning in 5k+ with interest and card fees on top.

  • Jimothy Wongingtons on 15/03/2024 - 11:01

    the devils invention

    its the lesser of two evils

    interesting choice of words…

    • doobey1231 on 15/03/2024 - 11:23
      +2

      Honestly thats just the sorta rhetoric I have seen over the years towards BNPL - people will scream from the roof tops to not use afterpay but have 3 credit cards in their wallet lmfao.

      • Jimothy Wongingtons on 15/03/2024 - 11:46
        -1

        fanatical religious people can be a bit strange yeah

  • 87percent on 15/03/2024 - 11:02
    +2

    Think the problem is people buying stuff on BNPL for things that they shouldn’t be buying. This isn’t a problem specifically with BNPL, but credit cards in general

    Not uncommon to hear instead of buying the iPhone 15, they buy the iPhone 15 Pro Max because they can BNPL

    • AustriaBargain on 15/03/2024 - 11:23
      +4

      Do we really "need" most of the stuff we buy through OZB? Buying stuff you shouldn't be buying is one of life's few pleasures.

    • doobey1231 on 15/03/2024 - 11:24
      +1

      Well yeah, as you said thats primarily an issue with the person using the service, rather than the service itself. I just don't understand why BNPL is the one that cops the flak when in theory it is the service that exposes people the least to ongoing fees and debt beyond the borrowed amount.

  • netjock on 15/03/2024 - 11:05
    +4

    BNPL is the old Layby. You just get the goods up front. I use it for the discount and promotions. Or it double up the interest free period on credit cards as I pay it using the credit card.

    Nothing wrong with it long as you don't use it as the company intended it to be used (like credit cards with a balance accruing interest)

    • FezMonkey on 15/03/2024 - 11:29
      +1

      It's the opposite of Lay By.

      Under Lay By you didn't get the product, it was held for you until you paid the full amount. And you didn't get charged any fees IIRC. So you weren't tempted to overdo it because you had to wait for the product anyway.

      Under BNPL you get the product now, which is a higher temptation due to the instant gratification. And if you don't make the payments on time there are fees.

  • cloudy on 15/03/2024 - 11:24

    I spoke to a mortgage broker he asked about debts, I mentioned my amex and afterpay accounts. He said to put it simply you just put down the amount owned on after pay as "other debt"

    I have spoken to brokers who said it should be the Afterpay limit that affects your max debt.
    I guess like all brokers, you can fudge a bit or fudge a bit more.

    I've also heard lawyers can give different advice on certain briefs of evidence too, i guess thats why do go to court?

    • doobey1231 on 15/03/2024 - 11:28

      My understanding of brokers is they get paid based on every successful applicant and repayment made, so its in the brokers best interest to get the information accurate right?

      I am sure there are differing opinions everywhere, but to have no effect with an afterpay account active, yet -$150k just for having an amex active, thats a significant difference based on his calculator. But yeah thats just personal experience like I said, definitely not something to take as gospel or the rule for every situation.

      • cloudy on 15/03/2024 - 12:54

        My understanding of brokers is they get paid based on every successful applicant and repayment made, so its in the brokers best interest to get the information accurate right?

        watch more news and you'll see brokers are highly incentivized to get you the biggest loan you can obtain, for them to get the biggest commission. The royal commission on finance has some intersting stuff, even for every day joe blow, as its you who ends up being sucked in.

  • Muzeeb on 15/03/2024 - 11:26

    Afterpay is great for potential price error purchases.

    If the sale gets cancelled and they fix up the refund within 2 weeks then the whole process is completely transparent to me.

  • Benoffie on 15/03/2024 - 11:30

    I fundamentally have no problem with Layby systems. But the issue here, in essentially HP systems is the instantaneous fulfilment, lack of transparency and management of accounts across companies.

    Now, that's not the companies' problem. It's no different to back in the day going and taking a HP out at one store then walking into another and doing it again.

    But most of us here are relatively financially capable. The average Aussie isnt. Financial literacy in this country sucks. And so there in lies the issue.

    Sometimes, people have to be protected from themselves.

    • doobey1231 on 15/03/2024 - 11:33

      I'd like to see more education on financial literacy over protecting Aussies from themselves. We are already quite authoritarian, to the point where Australians make the crucial error of basing moral rights and wrongs on our legal system rather than morals we are taught as children. I would like to see more education to allow people to grow and further themselves, rather than just more cotton wool wrapping and rules around stuff.

    • Broke-Ken on 15/03/2024 - 15:02
      +1

      I'm sorry, but for the life of me, I can't figure out what your "HP" stands for.
      Hewlett Packard?
      Horse Power?
      Harry Potter?

  • joshjosh210 on 15/03/2024 - 11:30

    I think there is nothing wrong with BNPL (and credit cards) for the matter if you are smart with them and don’t over indulge.

    Personally I have $40K credit card debt, but I believe it’s used wise.

    $30K on a cash advance card at 5%pa I used to purchase a car. A far better interest rate than what was offered by loans and I got a better deal on the vehicle by paying in cash.

    $10K every day card, why spend my own money when I can spend the banks? Pay it off in full every 55 days, collect reward points and keep the money in my offset. Win win.

    I recently used BNPL over 12 months to purchase two iPhones. By doing this I keep a percent of $3200 in my offset, doesn’t hurt the pocket and got a better deal on the phones than via a plan.

    I think it’s just about being smart and taking advantage of the offers BUT it’s easy to over step and be in a whole world of hurt.

  • avoidfullprice on 15/03/2024 - 11:36

    Whereas just having the credit card(paid off monthly) shaved a whopping 150k off our borrowing amount, even though the amex shows an impeccable record.

    So BNPL has less impact to mortgage borrowing capacity - is that what you are saying?

    Or are we comparing two loan product with different credit limit (e.g. 3k vs 20k), therefore different impact on borrowing capacity and use that to defend BNPL?

    • doobey1231 on 15/03/2024 - 11:45

      So BNPL has less impact to mortgage borrowing capacity - is that what you are saying?

      Its an example of it having zero impact beyond the current borrowed amount, vs the limit on the card alone effecting the borrowing capacity(even though the card is net zero and paid off end of month). Its just a story based on my own experience which is wildly different to what has been parroted ever since BNPL came in - ie "good luck getting a mortgage now that you have afterpay".

      I am not here to defend BNPL, I am here to try and clarify why people seem to think its a horrible invention that must be avoided at all costs, when credit cards seemingly have a much more drastic effect on individuals, not batting for any team here. Main reason for bringing it up is quite often in afterpay related bargain posts there is always someone talking about how BNPL schemes will wreck your credit rating and you'll never get a house because of it (paraphrasing, but its almost at that point lol).

  • altomic on 15/03/2024 - 11:47

    "i'd never ever use Buy Now Pay Later" - I state as I cry into my mortgage.

  • tsunamisurfer on 15/03/2024 - 12:03

    Ill preface this by saying that no credit cards AND no BNPL debt will always be the ideal situation, but this is about borrowing money.

    This is incorrect, I have received thousands of dollars of rewards and paid zero interest, the only cost has been some application fees).

    CC's, BNPL and Pay Day loans all have a place in the market and have their own target market.

    Everyone goes into them knowing the terms, the repayments, the costs(s) if any.

    • doobey1231 on 15/03/2024 - 12:39
      +1

      This is incorrect, I have received thousands of dollars of rewards and paid zero interest, the only cost has been some application fees).

      No its not, I gave you an example in the same post you quoted from where simply having a credit card adversely effects your borrowing amount when it comes to a mortgage. So if anything the answer is, and will always be, it depends. But more to my point, whenever BNPL is mentioned the first retaliation is to say something along the lines of "rip your mortgage capacity" when its actually credit cards that have the largest effect overall, so yeah, not really incorrect at all.

  • ihbh on 15/03/2024 - 12:46

    does BNPL deserve the hate it gets

    Same as do credit cards deserve the hate they get?

    You need to look at the user breakdown.

    There are two type of users. Transactors pay off their balance every month and so incur no interest charges/fees. Revolvers pay off less than their monthly balance and so incur interest charges/fees.

    The haters are the revolvers/their relatives/moralists, etc. But the revolvers cross-subsidise the transactors with points (can convert to cash/stuff/services) and time value of money and other benefits. E.g. there was two years running where Zip had a 10% off day - which was a time buy things you had planned anyway and load up with GCs.

    So there are haters and likers. PS: You'd think the haters would exert some self control and stop using them? That's where the relatives and moralists come in.

    • doobey1231 on 15/03/2024 - 13:22

      I don't think credit cards get nearly as much hate as BNPL does, at least on OZB people dont feel the need to warn others about credit cards when a deal is posted, but as soon as afterpay is mentioned someone is there saying it will screw your credit score.

      I cannot give you any data as far as your two types of users theory, but every single "transactor" I know parrots the never use BNPL speil

  • miwahni on 16/03/2024 - 01:13

    If you're financially literate, or not living hand to mouth, BNPL can be a great tool to spread an expense across your budget. But then there's the lady I saw recently who had 32 afterpay debits coming out of her account every payday. Before the end of her pay cycle she was hitting up the payday advance facilities - Mypaynow, Wagepay etc… some fortnights she had two or three of these. That was just scary.

  • dmbminaret on 16/03/2024 - 13:53

    I believe some lenders are beginning to look outside the box and equate afterpay to income expenses rather than a credit risk. The main issue is they may still use the whole 3k rather than what is owing.

    I think it's great. Take for example if you buy a bulk load of meals because you work away and will consume them over ~2 months. Why pay upfront when spreading the cost spreads the expenditure over the time of using the purchase which was ultimately cheaper per item by buying in bulk? That's just frugal which should be applauded by lenders…

  • Ramrunner on 18/03/2024 - 16:49

    As long as you have the money to cover, and there is no interest all is good.

    Otherwise you're p*ssing money up a wall. Simple.

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