If you’ve been out shopping in the last 12 months, chances are you have bumped into a little thing called Afterpay.
It’s been taking Australia by storm by providing us with a flexible new way to buy now and pay later.
But is Afterpay actually good for your budget (and your finances)?
The answer is yes – as long as you avoid the hidden dangers.
If you just stepped off a rocket ship and landed in Australia, you could be convinced that Afterpay is the only payment we take.
As of September 2017, Afterpay has been used by over one million Australians to make around $500 million in purchases. We’re clearly taking advantage of the concept and loving the convenience it provides.
To many consumers, Afterpay looks and feels like a great idea. But if you’re reading this, it means you know it’s a bit too good to be true.
Surely there’s a catch, right? The answer, in short, is yes. But that doesn’t mean you should skip it completely. If you know the secrets you can actually use Afterpay as a smart tool to enhance your budget.
So, before you jump in the car to stock up your wardrobe or buy a new TV, read on to discover how to make Afterpay work for you like a total pro.
What is Afterpay?
Afterpay is a simple payment plan that’s now available at all major retailers. It’s kind of like layby, but with a pretty cool twist – you take your item home from the register at the start, not the end, when you sign up for the service.
On the surface, Afterpay is like a line of credit with a supplier.
You claim your product now and receive the benefits of keeping cash in the bank for longer. But, as you’ll discover, there’s a few traps worth being aware of.
The Dangers of Afterpay
The first thing to pay attention to with Afterpay is the fine print for the payments.
Every fee you miss will cost $10, and if you can’t make the next scheduled payment you incur a further $7 per week until settled. If you’re not working to a budget, that could quickly turn into $50-$60 in late fees on a $100 item.
If you don’t pay your fees, your account turns into real debt that must be recovered. Afterpay spent $1 million on third-party debt collection to recover funds from customers. It only takes a few slip-ups to turn one or two payment plans into a default.
A default can hurt your borrowing power in the future, turning potential home loan applications into miniature nightmares. It only takes one blemish to send most major lenders running for the hills.
Keep this all in mind when using Afterpay. But as we suggested earlier, it can actually be a smart move if you know when to use it.
The Benefits of Afterpay
With smart financial planning, Afterpay has the potential to become a handy trick up your budgeting sleeve.
Using Afterpay to temporarily fund your purchases, you are leaving your own money in your savings (or offset) account, which means that you are earning (or saving) interest for every extra day that you hold it. Magic!
The golden rule is this:
Only use Afterpay when you have already budgeted correctly for the item.
Even if you don’t have the cash flow at the time of purchase, make sure that the funds are completely accounted for and that you will always be able to pay it back.
If you don’t have a planned budget or a financial plan in place, that should be your first goal. Once you know how to allocate correctly to achieve savings goals, you can spend freely knowing financial success will always be ahead of you.
To learn more about how to set up a smart budget for yourself and your family (and have some fun) give us a call or contact us today.
Disclaimer: “This website contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.”