As Accountants & Bookkeepers, we often see Afterpay expenses popping up in business books and personal finances alike. It’s clear that this buy-now-pay-later service has become a popular tool for many. While it can be convenient, we’ve noticed some common pitfalls that users may not be aware of which has prompted us to put together this blog post to help you understand the potential dangers of Afterpay and how to use it wisely.
How Afterpay Works
Afterpay lets you snag your favourite items right away and split the cost into four equal payments. The first one’s due at checkout, and the rest come every two weeks. No interest, no fees—as long as you’re on time. Sounds easy enough, right? But watch out for those late fees if you miss a payment—they can sneak up on you when you least expect it.
General Risks of Buy-Now-Pay-Later Services
Potential for Accumulating Debt
One of the most significant dangers of using Afterpay is the risk of accumulating debt. With multiple purchases spread out over several weeks, it’s easy to lose track of how much you owe. This can lead to a cycle of debt, where you’re constantly paying off previous purchases while making new ones. Imagine buying a new dress, some shoes, a handbag, and then realising you’ve got payments due for all of them at once. It’s a juggling act that can quickly become overwhelming, leaving you feeling like you’re never quite caught up.
Impact on Credit Score
While Afterpay doesn’t conduct a credit check when you sign up, missing payments can negatively impact your credit score. Late fees can quickly accumulate, and consistent late payments may be reported to credit bureaus, potentially affecting your ability to secure loans or other credit in the future. A poor credit score can limit your financial options, making it harder to buy a car, get a mortgage, or even rent an apartment. Keeping your payments on track is key to maintaining a healthy credit score and financial freedom.
Temptation to Spend Beyond Your Means
The convenience of Afterpay can tempt you to purchase items you wouldn’t normally buy if you had to pay the full amount upfront. This can lead to impulse buying and spending beyond your means, which can be particularly dangerous for individuals trying to stick to a budget. It’s easy to justify small, manageable payments, but those small amounts can add up quickly. Before you know it, you’ve spent more than you intended, and your budget is out the window.
Fees and Charges
Afterpay promotes itself as a fee-free service as long as you make your payments on time. However, if you miss a payment, late fees can be steep. These fees can quickly add up, turning a seemingly small purchase into a costly expense. Make sure that you understand the terms and stay on top of your payments to avoid these extra charges.
The Importance of Budgeting and Managing Expenses
So how do you use Afterpay without getting yourself in hot water?
- Set a Budget: Figure out how much you can actually afford to spend each month. Stick to it like glue! Remember, you’ve got other bills to pay too.
- Track Your Payments: Keep an eye on those payment dates. Mark them on your calendar, set alarms, tie a string around your finger—whatever works!
- Prioritise Necessities: Use Afterpay for things you really need, not just that shiny new handbag or pair of shoes.
- Monitor Your Credit: Check your credit report* now and then to make sure everything’s in good shape. Better safe than sorry!
- Understand the Terms: Read the fine print. Yes, it’s boring, but knowing the terms can save you from surprises down the line.
*How can you check your credit report?
In Australia, you can check your credit report through several credit reporting agencies including: Equifax, Experian, and Illion. You can request a free copy of your credit report from each of these agencies once a year. Visit the website of the credit reporting agency you choose and then follow the instructions to request your credit report. You will typically need to provide personal information such as your full name, date of birth, address, and identification documents. Once your identity is verified, the credit reporting agency will provide you with a copy of your credit report. This can be delivered via email, mail, or accessed through their online portal.
Conclusion
Afterpay can be a handy tool if used wisely. By remaining cautious, you can avoid the debt trap and keep your finances in check.
Disclaimer: The information provided in this blog post is for general informational purposes only and is not intended to be financial advice. For personalised financial advice, please consult a qualified financial advisor, including one of our experienced business partners.
