What is the impact of Buy Now Pay Later on your financial future?
BNPL stands for Buy Now Pay Later. Who would want to do that? Plenty of people so it seems. Depending on your age, you have either come to know this as normal or it still feels a little odd for the Gen X'ers and older who were brought up with Lay-By.
Layby means you pay instalments and get the item once it's paid off. BNPL means you get the item straight away then pay it off. Lay-by rules and rights don't apply to buy now pay later sales.
What is Buy Now Pay Later (BNPL) and who provides it?
BNPL is a type of short-term financing that allows consumers to make purchases and pay for them at a later date, usually in instalments. BNPL providers include:
- Afterpay
- Humm
- Zip Pay
- Klarna
- CBA StepPay
- and others
What about Pay Advance?
Pay Advance (aka Pay-on-demand) services allow users to receive part of their pay right away rather than waiting until payday, subject to interest and upfront and monthly fees.
Pay Advance providers include:
- Beforepay
- MyPayNow
- Wagetap
- CBA AdvancePay
- and others
Aussies who use BNPL are 43% more likely to also use Pay Advance services.(Research by Frollo)
BNPL use grew throughout 2022 as interest rates increased and Aussies looked to find solutions amid the rising cost of living. The average spend last year was $439 per month including repayments, fees and penalties.
Although Pay Advance services aren't as popular as BNPL, Pay Advance usage almost doubled in 2022. On average Pay Advance customers spent $1,331 per month on repayments, fees and penalties.
Simon Doherty from Frollo says " BNPL and Pay Advance are going to be part of the makeup of the consumer finance landscape for the foreseeable future.
A customer spending $500 per month on Pay Advance services might not be able to afford the same mortgage as someone who doesn’t. So it’s essential to get visibility over this spending to reduce risk and lend responsibly."
Impacts on Your Future
It may seem like a small thing right now, but any kind of debt including these seemingly innocent short-term financing solutions are wealth-destroyers. Typically these types of debts are for consumer purchases (aka discretionary spending, aka things you don't need).
Needs versus Wants
I talk about needs v wants a lot. Not knowing the different is this is the downfall of many and can create a make or break outcome when it comes to financial security. Understanding the difference and employing discipline is the best way to start when it comes to getting a handle on your finances.
What can you do to improve your chances of a brighter financial future
If you want to get ahead financially consider cancelling and/ or reduce all debts where possible. This includes credit cards, store cards, car loans and personal loans. If you want to buy a house or another Asset, then consider stopping any or all BNPL or Pay Advance (at least while you are transitioning in home ownership). Once you buy a home you will have other priorities including a new mortgage.
All debts including credit cards are assessed by the LIMIT not what you currently OWE.
E.g. if you have a $15k Limit on your credit card, but only use and can manage with a $2k limit then reduce it now. It all helps!
If you have any questions on this topic, or would like to learn about how you can create a better financial future please contact me here.
Do something today your future self will thank you for :)
Annette
