Move over debit and credit cards; consumers are flocking to Buy Now Pay Later (BNPL) services.

Financial technology companies such as Afterpay, ZipPay and several others  allow shoppers to take home their purchases now while paying them off through weekly, fortnightly or monthly payments. There’s no interest payable as such, although there are high fees for if your payment is late.

A recent survey by Mozo reveals that 30% of Australian adults have one or more BNPL accounts and we’re not afraid to use them.

Afterpay, our most popular BNPL service, achieved sales of $4.3 billion across Australia and New Zealand in the 2019 financial year, nearly double its sales of the previous year. With the nation set to splurge around $25 billion on Christmas, it’s a safe bet that plenty of that spend will be by BNPL.

But with 60% of those surveyed by Mozo admitting that BNPL lead them to buy things that they wouldn’t have otherwise, it begs the question: how to use this payment option sensibly?

1. SET YOUR LIMITS.

Make sure you have a budget, and use it to help resist the temptation of impulse purchases. By having a budget you know exactly how much you are spending which will allow you to save money in the future. If you are having problems sticking to a budget when using BNPL systems it is a good idea to sit down with a financial advisor and develop a financial strategy they can suit your spending and saving needs.

2. TRACK YOUR SPENDING.

Don’t just track your BNPL spending, track all your spending including credit and debit card ourchases. Knowing how much you are spending makes you accountable for your purchases and reduces the likelihood of impulse buying.  So are you staying within budget across all your spending methods?

3. AVOID FEES.

BNPL systems are great when you don’t have to pay late fees. Realistically, around one-third of BNPL users have missed at least one payment and had to pay the late fee. While late fees may seem modest, they can add up, the later you avoid this payment the higher the fee gets. If you stick to the budget set out with your financial adviser you should have the funds to avoid these late fees when using BNPL services.

4. DON’T REPAY BUY NOW PAY LATER (BNPL) LOANS WITH A CREDIT CARD.

As a financial adviser I wouldn’t recommend repaying BNPL with a credit card. If you don’t pay off your entire credit card bill within the interest-free period, adding your BNPL repayments to the card may see you paying a high rate of interest on your purchases. It is better to use a debit card or direct debit from your bank account, and making sure there’s enough money in the account to meet payments.

5. AVOID BUY NOW PAY LATER (BNPL) IF YOU’RE SAVING FOR A HOME LOAN.

Lenders look at all of your spendings and may look at your use of BNPL as a sign that you don’t have significant savings and are living from payday to payday. The lower your debt, of all types, the easier it will be to get a mortgage. If you are beginning to save for a home loan, one of the best ways to see where you can reduce your spending is by having a strategy session with a financial adviser.

6. HAVE A HAPPY HOLIDAY SEASON

Used wisely, BNPL can help you tackle all the sales this summer and stay on top of your spending. Just make sure you know what you’re signing up for and that you can meet all of the regular payments. Take care, and you’ll be able to enjoy the start of the New Year without a financial hangover.