Buy now and pay more later

Experts warn ‘buy now, pay later’ scheme AfterPay could affect young people wanting to buy a home in the future.

AfterPay customer Aimee Wharton, 26, had a hard time proving she had paid off purchases when she recently applied for a home loan.

When Ms Wharton’s mortgage broker requested evidence of repayments, there was no way of producing an official statement because of the app-like structure of the website.

Ms Wharton was only able to provide screenshots from the app on her phone to prove there were no outstanding payments.

The experience discouraged Ms Wharton and her husband from using the ‘buy now, pay later’ service in the future.

She said the scheme was risky because it was very quick to acquire and retailers were inconsistent with their returns policies.

“You, as a consumer, have to be on top of the different policies across different stores to make sure that a pair of $200 running shoes don’t end up costing you a home,” she said.

AfterPay advertising.

WA president of Finance Brokers Association of Australia Trent Carter said AfterPay had not prevented a home loan application from being approved at this stage however it required finance brokers to gather more information to convince banks.

Mr Carter said there was a need for a significant amount of due diligence to get approval from banks for loans whereas it is just a matter of downloading an app for AfterPay.

Despite its convenience in theory, Mr Carter warned of the long-term impact a late payment could have on credit files.

“All it takes is one bad payment to put a late payment notice on your credit file, which then takes a while to get rid of and then that impacts the things you want to do in the future,” he said.

Consumer Action Law Centre senior policy officer Katherine Temple said AfterPay debt was a growing issue.

“The product itself needs to be safer and made more responsible because it doesn’t seem right that ‘buy now, pay later’ organisations can profit from giving money to people that can’t afford to repay them,” she said.

Ms Temple said consumers had taken all the responsibility by paying late fees, facing debt collectors and juggling their finances.

“I would like to see some corporate responsibility where companies make an effort to make ethical and safe products that actually enhance financial wellbeing rather than trap people in debt spirals,” she said.

AfterPay advertising.

Ms Temple said ‘buy now, pay later’ schemes made it harder for their customers to resolve issues because they were not covered by the same rules as other credit services.

She said when customers had problems with credit cards and other types of loans, they could go to an Ombudsman for an external dispute resolution service while AfterPay was not subject to the same obligations.

Unlike other ‘buy now, pay later’ schemes, AfterPay lends money to a retailer and the customer then repays AfterPay. 

Curtin University head of accounting Saurav Dutta said young people were especially vulnerable to the scheme because they tended to be optimistic about their future financial state.

“Young people tend to have lower bank balances, hence when encountering unexpected expenses, they may default on AfterPay,” he said.

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