Australians are seeking buy now, pay later (BNPL) loans to cover basic needs such as food and rent at an alarming rate as their empty bank accounts allow them to survive.
“A lot of people are struggling, they’re using credit cards to pay off those loans, they’re skipping meals, they’re skipping other bills for essentials or utility bills,” Patrick Veyret, senior policy adviser for the consumer group Choice, mentioned.
According to data from the consumer advocacy group, one in five people have used a BNPL service to pay for household items like groceries and rent in the past year.
But major industry players say the move reflects a generational shift away from credit cards.
“For decades, consumers have used credit cards in supermarkets and for other everyday expenses,” an Afterpay spokesperson said.
Angliss Meats in Townsville only introduced the small loan scheme two weeks ago, but at least 50 people have already taken up the offer.
“It brought in a few more people,” butcher Ryan James said.
“They’re just really happy that we have him now.
“They can (pay) for their groceries a little easier.”
There is a $100 minimum spend at their Burdell store, but with meat prices soaring, Mr James thought BNPL was a big selling point.
“A lot of people don’t even tell us they use it, some of them just tap their card,” he said.
Calls to fill the gaps
BNPL services are largely unregulated, with providers having no legal obligation to verify that borrowers can repay loans.
“We’ve heard from financial advisers who help people in debt that some people have 10 or 11 loans,” Veyret said.
“One person had 11 loans to pay every fortnight and that’s because these new lenders don’t have to do proper credit checks.”
He said borrowers who fail to repay on time face stiff penalties.
“Most vendors charge people late fees and the research we’ve seen has shown that sometimes those late fees actually mean that buy now, pay later is more expensive than a credit card,” said he declared.
There are up to 15 different BNPL providers in Australia, each with their own terms and conditions.
“A number of new players appear every month,” Mr. Veyret said.
“Some think buy now, pay later is the darling, when in reality this is an unregulated credit service and we are seeing payday lenders trying to cash in on it.”
Choice has joined global calls to regulate the industry in light of the rising cost of living.
make the rent
Small loans have also been extended to include regular payments such as rent.
Antonia Mercorella, chief executive of the Real Estate Institute of Queensland (REIQ), said it was a worrying trend caused by rising rental costs.
“We’re starting to see people offering beyond the asking rental price, which could lead to people offering money that isn’t necessarily affordable to them,” she said.
Ms Mercorella said that while reliance on BNPL loans to cover rent had not been widespread so far, she feared the situation could get worse.
“These programs are becoming more and more attractive,” she said.
“What is of particular concern is how these programs are used to pay for essentials.”
Reflect generational change
In a statement, an Afterpay spokesperson said the service was becoming available in an increasing number of retail categories, including daily spend.
“More than 1.1 million credit cards have been canceled by consumers since the start of the COVID pandemic, as consumers increasingly turn to safer alternatives such as Afterpay,” they said. .
The organization said it started customers with very low spending limits and users were required to make their first repayment in advance.
“Post-payment spending limits only increase based on a customer’s repayment history,” the spokesperson said.
Dealing with ebbs and flows
Last week, financial provider FuPay signed an agreement with retail giants IGA, Foodworks and United Petroleum to provide short-term loans of up to $500 for essentials like bread and milk.
“We actually have a solid understanding of our customers’ financial situation and have all of their banking data to determine if they can actually afford to borrow this and using our service will it cause harm” , said FuPay chief revenue officer Betsy Westcott. .
Ms Westcott said borrowing to cover living expenses was nothing new.
“For decades, people have used credit to pay for everyday goods and services through credit cards,” she said.
“What’s different now is that younger generations don’t use credit cards anymore.
“Access to credit is very important to smooth out the daily ebbs and flows of your cash flow and if you don’t have a credit card, how do you do it?
“That’s where these mini-loans that are made available at the time of a purchase can come in.”
She said it could help people save money in the long run.
“You might get the most out of a special or bulk discount,” she said.
“If it’s a cheap day in terms of fuel prices, it’s an opportunity to fill up the car instead of just filling it up for $50 because that’s all that’s left. [from] the pay cycle.”