Why ZipPay and AfterPay debt is spiralling and affecting loan applications

Australians owed $903m in June with one in six defaulting or incurring fees.

A recent ASIC review into the ‘buy now pay later’ industry, which includes highly popular finance products like ZipPay and AfterPay, has revealed some very concerning data regarding spending habits and increasing debts among vulnerable consumers.

The industry is currently under review and there is a spotlight on the fine print contained in the terms and conditions. So many users of these products have no idea that they will incur fees along the way, and they have no idea what happens if they can’t pay on time. Read the fine print!

Buy now and pay later products have grown exponentially since 2015, and currently, these companies are not subject to the same rules as other credit companies like banks and lenders. We may see this change in the future.

The ASIC review reveals that since these products have become available in Australia, usage since 2015 has increased 500%.

Australians owe millions in ‘buy now pay later’ products

The review indicated that in June, 2018 Australians owed a staggering $903m in ‘buy now pay later’ products alone. Even more frightening is that one in six users are reported as incurring fees or defaulting.

Now credit files also record AfterPay and ZipPay defaults

This means that many credit reports now contain these types of defaults.

As mortgage brokers, we can confirm this trend is increasing and sadly many prospective borrowers are unknowingly affecting their ability to get a home loan, investment loan, refinance or any type of credit due to misunderstanding these products.

Many consumers view products like AfterPay and ZipPay like a payment plan, however, it’s not as simple as that.

Banks and lenders view these transactions like any other debt, similar to a loan repayment or credit card repayment.

So, when it comes time to apply for credit and your living expenses and bank statements are under review, having high volumes of ‘buy now pay later’ transactions like AfterPay and ZipPay can work against a successful application, especially if there are defaults.

Unfortunately, low income earners and young people are most at risk

Many of us remember how popular Layby was. We loved the days of Layby as it was less lucrative and forced us to budget our spending. Layby gave us more control over what we can afford as we have to wait to get the product.

The ‘buy now and pay later’ industry is not the same as Layby by any means. Products like AfterPay and ZipPay are structured to allow consumers to easily create bad habits and we get to take products home before we have even paid for it!

ASIC’s review reveals some troubling statistics regarding the age and income demographics of consumers using these products.

60% of users are aged between 18 – 34 years. Many in this demographic are on lower incomes and are aspiring first home buyers. Our top tip for those saving for a deposit is to limit use of ‘buy now pay later’ products, at least while they are saving.

Ask yourself this: What will a bank think if I’m using AfterPay to buy a $100 pair of shoes then asking to borrow $450,000 for a home.

Don’t get us wrong, ‘buy now pay later’ products can be helpful, but only in small amounts and when it’s genuinely helpful or necessary.

Increased and highly strategic marketing, during the Christmas period in particular, can be very tempting. But sometimes it just pays to wait until you can afford the purchase, or, ask yourself twice, ‘do I really need this, or will it end up unused?’

We care about compliance and your savings

One of our favourite sayings at WhiteStar Group is that we want to help as many people as possible save more and achieve more with what they already have.

We care about the health of your credit score and the health of your savings. When it comes time to apply for that first home loan or next home loan, refinance, or debt consolidation, or even investment loan to start planning for retirement, it would be a big shame for a bad AfterPay or ZipPay habit to come in between you and your dreams.

Merry Christmas and safe spending! Give us a call to chat about your finances, we’d love to help you save more and achieve more.

 

Data source: https://asic.gov.au/about-asic/news-centre/find-a-media-release/2018-releases/18-357mr-asic-puts-spotlight-on-the-rapidly-growing-buy-now-pay-later-industry/