Photo by rupixen on Unsplash
In 2022, the Australian Finance Industry released a report that showed how Afterpay created a catch-22: people would use it to pay for essentials, yet it’s been reported some would also need to cut back on essentials just to make the required repayments. Today, 40% of Australians aged 18-39 regularly use Afterpay and have done so within the last twelve months, according to an August 2024 report by the Reserve Bank of Australia’s Consumer Payment Survey, with Gen Z and Millennials the main users of this service. However, a survey by comparison website, Finder, has shown that late fees have increased by 20% in the months leading up to 2024, and this rise has been linked to the cost-of-living crisis that young adults are finding themselves in today.
Afterpay is an Australian buy now, pay later (BNPL) service, founded in Sydney, that allows customers to purchase items and pay them off in four instalments. According to their website, Afterpay reportedly conducts “soft credit-checks” when people first sign up, however, as of June 2024, there have been fresh calls from the government for the implementation of mandated credit checks of users by BNPL services.
This recent call comes as young adults facing financial troubles have been approved to use Afterpay, even with the high risk that they would struggle with repayments and find themselves in debt. So, is Afterpay actually a “buy now, stress later” scheme?
Is Afterpay like a layby, or a harmless- seeming credit card:
Amy Anshaw-Nye, who is studying for a Bachelor of Arts/Creative Industries at Western Sydney University, says:
“Yes, I can see some young adults becoming in debt due to Afterpay. I see Afterpay as a service similar to layby-this is how I use it, but I understand it is more like a credit card in how it functions. Cons of Afterpay are that it would be easy for a user to take on more debt than they are able to repay, as Afterpay offers quite a high dollar amount to spend
without a credit check.”
The issue with increasing the amount you can borrow:
Akin to a sugar rush, the purchase limit on Afterpay steadily rises once the user of the BNPL service has consistently made several purchases and repayments on time (incurring no late fees). The spending limit begins at around $600, with the maximum amount being $3000-$4000. In one in-store or online purchase of $1500, however, the amount needing to be paid back would be $375 every fortnight for four payments- so, what if you do miss a payment? Afterpay addresses this issue on their
website. On the issue of being unable to pay the money back for one of the fortnights: they state one has the option of rescheduling a payment up to 3 times per year; after that, however, late fees would be incurred on any of the remaining 362 days if one makes a purchase but then misses a fortnightly payment.
For orders of $40 and above, Afterpay states on their website that each time an instalment is late, an initial fee of $10 is charged. Additionally, if the amount has not been paid after one week, there will be an additional late fee up to $7, coupled with the amount already owing.
There is, though, a cap on the number: Afterpay says they will not exceed the amount of $68 when it comes to late fees for its users.
Young adults are using Afterpay for purchasing more than clothes or household items:
Afterpay’s head of policy, Michael Saadat, told the Sydney Morning Herald in April 2024 that the BNPL service is now “mainstream” among young people, but disagrees that more customers are using it for bills in 2024 rather than just purchases:”People are still using it for the kinds of things we expect them to be using it for,” Saadat says. “The main categories include clothing, household items, beauty products and footwear.”
However, recent data from a report by the Finance NSW Advocate for Children and Young People shows an increase of households and customers using Afterpay and other BNPL services to pay for dental procedures and groceries and with the introduction of Afterpay Plus in August 2023, which gives the users the option to pay in four instalments in almost any shop – people can use the BNPL service at most retailers to purchase necessities, including Woolworths, for their daily or weekly shop, and even chemists and pharmacies.
“As with most things, I don’t think we can say Afterpay is “good” or “bad”,” says Anshaw-Nye. “It has its upsides and its downsides. For my own personal use, I think Afterpay is good. I also purchased my laptop on Afterpay at a time when I was unable to buy it outright. My old laptop broke and so I needed a new one urgently for work and study. However, I sympathise with people who are pushed into using it for necessities.”
According to the Australian Bureau of Statistics, there have been higher annual living costs across all Australian households in 2024 thus far, with Living Cost Indexes (LCIs) having risen from 1.2% to 1.4% in June alone. One of the main contributors for the rise in cost-of-living pressures apart from food, housing, transport and health- has been insurance and financial services, such as Afterpay.
When asked what could help with protecting young adults from becoming in debt with Afterpay and other BNPL services, Anshaw- Nye responds:
“I think the answer isn’t to restrict credit services but to make the cost of living lower, though that’s another topic altogether.”
Many Australians would agree that the Albanese government’s solution to the cost- of-living crisis has been late: thus, enter BNPL services (just not their late fees).
Click here for more information on Financial Support for Western Sydney University Students.
Read this article in New Perspectives, WSUP’s Magazine Print edition
