Don’t Drown in ‘Buy Now Pay Later’ Debt This Christmas

December 9, 2021

Christmas is fast approaching and there’s a good chance you’ve started turning your attention to gifts for family and friends. But be careful this silly season: more than half of Buy Now Pay Later (BNPL) customers are struggling to pay day-to-day living expenses.

Christmas and overindulging: name a more iconic duo.

But one temptation to avoid indulging in this silly season is BNPL services such as Afterpay and Zip.

There are more than 5 million active BNPL accounts in Australia, which make up about 20% of online retail transactions.

And a new report by Financial Counselling Australia has revealed BNPL debt is causing significant financial stress to users who have overcommitted to the products.

The BNPL report, titled “It’s credit, it causes harm and we need safeguards”, shows ​​61% of financial counsellors say most or all their clients with BNPL debt are struggling to pay day-to-day living expenses.

“Financial counsellors are seeing people with multiple BNPL debts. They are really concerned that so many clients are using the product to cover essentials like food, medications and utility bills,” said Financial Counselling Australia CEO Fiona Guthrie.

“This is very worrying, especially as we head into Christmas which is traditionally a time of heavy spending. Buy Now Pay Later could leave people with a financial hangover come January.”

The emergence of the BNPL market

These days, BNPL can be used for small purchases such as a pair of shoes, to a night out at the pub, to larger purchases of up to $30,000 for cosmetic surgery or solar panels for your house.

“And as the market grows, financial counsellors are seeing more clients with BNPL debt.

“84% of financial counsellors surveyed said that about half, most or all clients presented with BNPL debt now. This compared to just 31% a year ago,” says Ms Guthrie says.

And it’s a trend that has the federal government worried – this week Treasurer Josh Frydenberg announced plans to reform and tighten the rules around new digital payment systems, including BPNL and cryptocurrencies.

Other important reasons not to overcommit to BNPL

While financial regulators and credit reporting agencies have been caught a little flat-footed by BNPL, one of the three main credit reporting agencies in Australia, Equifax, recently announced that BNPL accounts and transactions will be included in credit reports from 24 July 2021.

And most (if not all) lenders pay attention to whether or not you use BNPL services when they’re assessing your home loan application.

That’s because BNPL is still a credit liability that needs to be disclosed when applying for a home loan.

So if you have any doubts about whether a BNPL purchase might affect your ability to secure a home loan – or pay off your existing one – then feel free to get in touch.

We’re all about the Christmas cheer around here, and there’s nothing more cheerful than not suffering from a BNPL financial hangover once the silly season has come to an end.

If you’re not into BNPL and just want to find your dream home, we can also help you out in that department. Browse our search page to check out some amazing listings available right now.

But don’t just stop there, download our app to get the full Soho experience. Just remember to shortlist or swipe left on our listings so we can send you others that better match what you’re looking for.

Soho is your expert team in Australian real estate, offering an innovative platform for effortless property searches. With deep insights into buying, renting, and market trends, we guide you to make informed decisions, whether it's your first home or exploring new suburbs.
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