Nov 07, 2019

Our Insights

Australian founded company Afterpay has been changing the face of retail over the last couple of years. But when it comes to your finances, is it a help or hindrance?

What Are Pay Later Platforms?

Afterpay (and similar platforms such as Zip and Openpay) work on the premise of ‘buy now, pay later.’ They provide instant gratification and a convenient alternative to the traditional shopping method of layby for items you can’t afford upfront.

Using a platform such as Afterpay, the buyer gets to take home their desired items without paying the full amount.

Afterpay covers the cost of the purchase so that the retailer is paid in full at the time of purchase. The buyer still has to pay, but the total price is divided into four fortnightly payments over the next couple of months which the buyer then makes to Afterpay. This arrangement lessens the economic pinch at the time of purchase.

Afterpay covers the initial cost, but it’s up to the buyer to pay the balance on their account in a timely fashion.

Why Everyone’s Talking About Afterpay

Afterpay might sound similar to buying with a credit card, but there’s a big difference: you don’t owe interest when you buy through Afterpay. 

As long as you repay the borrowed money according to the fortnightly schedule, you won’t owe Afterpay anything. The company makes most of its earnings from their agreements with retailers that accept Afterpay as a form of payment. This no-interest factor is the major draw that attracts millions of Australians each year to the platform.

Read This Before Using Afterpay

It is very appealing to have a payment system that covers you when you don’t have sufficient funds in your account or want to balance your cash flow. But there are a few pitfalls associated with this popular payment platform that you should know about before you get carried away with your spending.

Using Afterpay can impact your credit rating.

Afterpay does not actually let you take out a line of credit (they simply allow you to ‘pay later’) so they don’t run a credit check before letting you open an account. Anyone with a credit card or debit card qualifies to open an account. But a pattern of missing your scheduled repayments will lead to late fees and the company can report you to credit reporting agencies. So a bad history with Afterpay will negatively impact your credit history. 

You can still owe interest on Afterpay purchases.

Afterpay doesn’t charge interest, but your credit card company does. If your account is linked to your credit card, then those charges made with Afterpay will only hit your card later. The longer you have a balance on your credit card, the more interest you’ll owe your credit card company.

Afterpay can lead to more economic distress than convenience.

The ability to purchase anything and everything you see with money that isn’t yours is a dangerous one. Many Afterpay users admit that they spend more with Afterpay than they would if they used cash or their debit card. Afterpay can come back to bite you when you see how much you owe at the end of a fortnight.

Afterpay: What Do the Financial Pros Think?

A good financial adviser wants you to reach your financial goals by sticking to a plan, a budget, investing wisely and avoiding debt. While Afterpay isn’t a credit system, it can be a real trap for individuals with little self-control when it comes to shopping.

Don’t fall for the apparent convenience of buying now and paying later. Proceed with extreme caution and avoid getting into debt of any kind, even if it is just a $50 fortnightly debt to Afterpay.

Shopping within your budget and only spending money you currently have are still the smartest strategies to stay in control of your money.

Get advice

Calder Wealth Management will put you on the pathway to achieve your financial goals.

Talk to the team at Calder Wealth Management. Call us on (08) 8373 3333 to schedule your free initial appointment. 

Written by Ben Calder at Calder Wealth Management.