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Many online retailers hopped on the Afterpay train in 2017, and now we can see stores in our local shopping centre are also offering Afterpay. Is it really a good idea buy now and pay later, and what are the consequences should you miss a payment?

 

What is Afterpay?

Afterpay is a service similar to layby, except the customer is able to take home the product before making any payments. After committing to purchase, the shopper will have eight weeks to pay off the cost. The Afterpay payments are set up automatically with the shopper’s bank account, and the set amount is deducted every fortnight. This means that shoppers will not need to remember to make payments, as they will process automatically each fortnight.

Afterpay may appear to be a great service. You get your item immediately, in two months it will be completely paid for, and you don’t even have to think about the deductions from your account every fortnight. But the million dollar question is how does Afterpay make money? Why would they offer a service that benefits you, the customer, if they receive nothing in return? It is important to remember that these services are a business, and businesses need to make money.

What are the risks?

It could be helpful to look at Afterpay in a similar way to the way you would look at a credit card. Afterpay is, after all, essentially a credit card in a different form. The biggest difference is that Afterpay does not have a comprehensive screening system in place. This has the potential to make it riskier than an ordinary credit card. Customers with a bad credit rating may be instantly accepted, making them easy victims to Afterpay’s late fees.

Reports from Afterpay state that they make 20% of their income from late fees. If a payment is not made by 11pm the day after the due date, a $10 fee is charged by Afterpay. If the payment is not made in the next seven days, another $7 is charged. The fees are quite hefty, considering the relatively small purchases that can be made with Afterpay. If you purchase a $120 pair of jeans through the service, you commit to four fortnightly payments of $30. If you miss a payment, $10 is added, making it a $40 payment. If your payment is late every fortnight, you end up paying $160 for a $120 pair of pants. While it may seem excessive to be missing every payment, if you have multiple payments on the go, they can add up quickly, and could see you paying hundreds of dollars of repayments every week.

As the holiday season finishes and we enter into January, many families will be feeling the financial burden of Christmas. Unfortunately for many, this will include Afterpay repayments for presents and holiday party outfits. Afterpay means that you could be paying off your Christmas party dress well into February.

Avoiding the Trap

It is easy to get carried away adding items to your online shopping cart without regard for the total cost you will incur each week from Afterpay. We recommend calculating your repayments before committing to a purchase, and keeping track of the cost of all your repayments combined. Doing so before clicking ‘check out’ could help you avoid ending up in financial trouble over an ASOS order.

 

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