It’s Christmas and a New Year Time yet again and again time to spend money on gifts, travel and holidays. The new craze that has seen Australians owing shocking 903 Million AUD dollars till June 2018 is, an interest free or buy now pay later schemes.
How does this scheme work?
Under this arrangement you can take home the product- item, holiday package or simply borrow money to pay a bill immediately from participating businesses and then pay the borrowed amount in instalments.
What’s the catch?
Well someone once said, ‘there are no free lunches in this world’ and going with the buy now pay later platforms do have some downsides attached to them.
Though these platforms have not yet been categorised as credit providers, but they can report your negative activity to credit rating agencies which can severely dent your credit score. In case of refund, you will have to contact the seller directly as these services do not deal with refunds.
How to make sure you are doing the right
- Do not bite more than you can chew- Though there are mathematics working behind the system to stop you from spending more than you actually can, I highly recommend doing your own calculations in regard to your budget and shop accordingly.
- Linking to credit card A BIG NO-NO- If you are planning to use one of these platforms remember to link it to the debit card to make your repayments as linking it to credit card will build up the balance resulting in further debt from the interest.
- Having enough funds and set up payment reminders- Always keep track of your accounts and make sure there are sufficient funds in the account or credit card as these platforms use direct debit.
- Terms and conditions- Always read the fine print and make sure you understand the contract to avoid any potential risks and how your personal information would or could be used.
Though these services are same to using credit card or lay-by services, but they are not in any shape and form equivalent to any traditional forms of credit. Now the main question is how they can affect my credit score.
When we use these services, Banks might think that you don’t have confidence in your finances and that you are not a responsible client. Some banks reject your application straight away.
One missed payment means that you have opened a world of pain for yourself in regard to acquiring credit such as Home Loan from the banks. So, if you are thinking of buying a house or applying for a home loan, please avoid these services or do it after you have a successfully got your home.
Not sure you can afford to pay off the borrowed amount, please do not apply for it.
Here is list of some of Buy-Now-Pay-Later service providers: –
- Afterpay- www.afterpay.com
- MOZO- www.mozo.com.au
- Open Pay- www.openpay.com.au
- Zip Money- www.zip.co
- Humm – www.shophumm.com.au/
The Sunday Morning Herald
Avi Gill is an Accredited Finance Specialist with more than 5 years’ experience in the industry. He is also a successful blogger who is committed to informing people of latest developments happening in the Finance Industry.