Over the past year we have seen a huge growth in the Buy Now Pay Later schemes. Companies such as Afterpay have made a huge impact in the online world and are being very successful. So how does this affect our buying power as consumers and is this form of debt a good thing?
We all borrow money whether it’s to purchase a house, to buy a new car or to buy household goods but all of these items are what we call big ticket items. They are large purchases that require some planning and often some financial advice.
Then there is the credit card – now some would say that this is a form of borrowing too, where we are ‘allowed’ to purchase everyday goods on credit terms. If at the end of the term we have not paid it back we get charged interest on that amount. Some people use a credit card as a form of bank account and pay it all back at the end of the month where others use it as a borrowing service and will pay it back when they can and accept the charges.
In today’s world there is the ‘Buy Now Pay Later’ scheme that allows consumers to purchase and obtain goods and services in-store or online immediately, but pay for the purchase over time. For example, a consumer purchases a TV that costs $1000 and chooses to pay with Afterpay in 4 installments, making each payment $25.00 if they pay on time every time. With these schemes there are no interest charges but there are penalty fees for late payments. There is also a maximum amount that you can borrow with these schemes and they are usually around $1,500.
The question is how does this ‘Buy now pay later’ scheme affect our buying habits and our future borrowing habits?
We all know that consumer demands are ever increasing and the need to have everything now is prevalent with millenials. However, this habit it not something that we have necessarily seen so accessible before. There has always been hire purchase plans but making these everyday small items easy to buy on ‘credit’ will either get the millenials more in debt or will introduce them to a basic form of financial planning which they must include in their monthly budget.
With more and more of these schemes being introduced into the NZ marketplace, like PartPay, Genoapay, Laybuy, Afterpay and OxiPay it will be interesting to see which way this pans out in the future. It will either create more debt and borrowing or it will create more money conscious individuals. Time will tell.