Call for consumer caution over Christmas credit

Online shopping

Consumer Protection is advising caution for Christmas shoppers with a wider availability of credit options including ‘buy now, pay later’ schemes and payday loans which could leave consumers drowning in debt.

The COVID-19 pandemic has seen increasing use of ‘buy now, pay later’ schemes which allow shoppers to take possession of the goods straight away while paying off the purchase price in instalments.

At the height of the pandemic, prominent ‘buy now, pay later’ business Afterpay picked-up one million new users with $2 billion spent on buying goods and services in the June quarter. While Afterpay is the most dominant force in the market, its rivals include a growing number of similar platforms such as zipPay, BrightePay, Payright and Openpay.

Commissioner for Consumer Protection Lanie Chopping warns that consumers should think twice when considering to buy now, pay later.

“The key advice from the financial regulator Australian Securities and Investment Commission (ASIC) is to check the terms and conditions before you sign up to any scheme. They are often promoted as interest-free but there are late fees, account-keeping fees or payment processing fees that may apply,” Ms Chopping said.

“For example, while you may make a purchase for $100, one late payment could cost you up to a further $17 plus any potential bank fee for a payment default.

“A review by ASIC in 2018 found that one in six ‘buy now, pay later’ users had become overdrawn, delayed bill payments or borrowed additional money. Most consumers reported that the option allowed them to buy more expensive items and generally spend more than they would normally.”

Check out ASIC’s Moneysmart website for tips on staying in control when you use a ‘buy now, pay later’ service, including:

  • Plan ahead to ensure the repayments fit into your budget and other financial commitments.
  • Link your ‘buy now, pay later’ account to your debit card instead of your credit card – that way you are using your own money and will avoid extra debts or interest.
  • Don’t over-commit – stick to a limit and only have one ‘buy now, pay later’ at a time.
  • Contact your provider straight away if you’re having trouble making repayments.

Consumers wanting quick cash for Christmas spending may also be tempted to get a small amount loan, or payday loan, which allows them to borrow up to $2,000 but can end up being more costly in the long-term.

“Lenders can’t charge interest on payday loans, but they can charge a lot in fees. Most payday lenders charge an establishment fee of 20% of the amount borrowed and a monthly service fee of 4% of the amount borrowed. For a $2,000 loan, that’s a $400 establishment fee and $80 per month for the service fee,” Ms Chopping said.

“By law, payday lenders must lend responsibly. This means they can’t give you a loan if they think you won’t be able to repay it or it could cause you substantial hardship. If this happens to you, lodge a complaint with ASIC.

“Consumers should consider cheaper ways to borrow money, such as low interest or even no interest loans, which are offered by various community groups and charities, or apply for a Centrelink advance payment.

“Financial counsellors can provide free advice and negotiate with creditors such as telcos, water and power companies to pay in instalments or defer payments until after Christmas.” Contact details for your nearest financial counsellor can be found online.

Further information and tips on payday loans are available on the Moneysmart website. Enquiries with ASIC can be made by calling 1300 300 630.