Pay later options are attractive, you can purchase what you want instantly, and not have to worry about paying it off until later.
Add to this no fees, and no interest payments and it seems like the obvious choice over a credit card.
How does it work?
Usually, you pay an instalment upfront, and the company you’re using pays the rest.
You take your newly purchased item home, and then pay back the company in instalments until it’s fully paid off. These repayments are automatically deducted from your bank account.
Does it require a credit check?
No, most of these schemes don’t require a credit check to use them, but, they do appear on your credit history and can affect your credit score if you miss a payment.
Is it debt?
Yes, as you are still owing someone, in this case, a company, money. Instead of saving to pay for something over, say, two months, you’re paying it off over this time. Which is fine, as long as it’s budgeted for.
Things to watch out for
These pay later options are tempting, and we aren’t saying by any means don’t do them. Just make sure you understand your budget; can you afford that extra $40 a fortnight? Does it mean you have to cut something else out while you pay it off? Maybe it’s cutting down on the daily coffee you grab on the way to work.
Missing Payments
These services are set up to automatically deduct the payments from your account. If you can’t make the payment, you’ll be hit with a late payment fee. Meaning that a $200 purchase could end up costing $250 if you haven’t budgeted for the payments.
Buying more than you can afford
Shops have implemented these payment schemes as they know paying in instalments means that people will buy more from them, and they still get the same upfront payment. It means their staff are likely trained to “upsell” you and encourage you to purchase more items than you first intended. Don’t be tempted to take on more than you can afford, as you’ll pay the price later.
Your credit score
If you can’t make a payment, this will have a knock-on effect on your credit score. A poor credit score can then affect future decisions – such as buying a house. If your credit score is poor, it may be hard to get approved for a mortgage!
Our tips to make it work for you
Make sure you know your budget.
Do you have an extra $20 a week that you know can go towards these items? Or do you know what you can cut down on to make sure you can afford to pay it back, and still be able to afford your essentials?
Try to only use these for larger items
Some companies have limits on what you can spend with them. If you don’t need to use them, make the payment upfront, so you’ve got spare cash in the weeks ahead.
Avoid the stress and save ahead of time
If there’s something you know you want, or need. Whether it’s an essential item or something that you’ve been eyeing up for some time. Sit down with a pen and paper and work out how much you can afford to save for it, per week or fortnight, and set this money aside so when the time comes, you can pay for it upfront.
Only use one provider at a time
With multiple companies in the market, it’s easy to sign up for more than one. Just remember, you’re still liable for the cost. Try to limit yourself to only one provider, and one purchase at a time, to ensure that it’s manageable and you don’t get hit by any late payment fees.
The takeaway
These pay later schemes can work for you, and we aren’t saying don’t use them. But like every purchase, take a moment to step back and make sure that you can afford this in your budget. If it means cutting out some items, is it worth it?
Make sure you understand the companies terms and conditions, and what options there are if you can’t make a payment, so you don’t get caught out and feel the effect further down the line.