The Truth About Afterpay
The Afterpay phenomenon is hard to miss. Spend five minutes in a shopping centre and you will be inundated by the signs: “Buy now, pay later!”. Afterpay is just one of a number of “interest free” credit providers who allow you to purchase and take home goods now, then make repayments over a set period.
While it might sound appealing, as with most forms of instant gratification the buy now - pay later scenario generally comes at a cost. So how can these instant credit scenarios impact your finances?
Your Immediate Future Cashflow:
It is a loan, so you do have to pay it back. This means your cashflow for the period following the purchase will be negatively impacted. As when you purchase anything on credit, often when it comes time to actually pay, the novelty of the new item has worn off and you are paying for something that is effectively now old.
Getting a Home or Car Loan:
When you are looking to get a home or car loan, lenders do various checks on your credit worthiness and borrowing capacity. Loans such as Afterpay or zipPay can potentially affect your credit score and therefore your borrowing ability. They can also reduce the amount you are eligible to borrow as the debt has to be factored into your asset and liability situation.
Building Good Financial Habits:
Remember what your grandmother said about not buying something that you can’t afford? Well, she was right. If you can’t afford it, guess what, you can’t afford it. Getting in the habit of saving for such items is not only ideal for your overall financial picture, you will feel much better being comfortably able to make the purchase without the guilt.
If what you purchase is faulty or the wrong size, when you go to return the item and obtain a refund, there may be issues or delays if you have purchased via Afterpay or similar. If you do go down the interest free finance route, make sure you check how the refund / return policy applies to this situation.
You might want to ask yourself before you purchase something on credit, why it is you are actually buying it. Is it something you really need? Is it something that you want to make yourself feel better, or worse, impress someone else? If it is one of the latter two reasons you can rest assured that feeling will be short lived, especially when it comes time to pay the debt.
By all means, treat yourself - but save first and treat yourself when you can afford it.
For more information on how Afterpay and the like can affect your borrowing capacity contact us.