Afterpay and Zip Pay – are they all they’re cracked up to be?

When I was growing up we had a thing called Layby. Are you old enough to remember that?I used to Layby everything! I’d put away things for my glory box. I’d Layby Christmas presents. I’d Layby my next season’s wardrobe. Layby was putting your goods away and paying them off over a period of a couple of months. They shop stored them out the back and once you had made the last payment, they would give you your goods. None of this instant gratification, you had to wait patiently for the goods and budget accordingly so you could afford them.Now, this sort of system has been turned on its head. Everyone wants their goods now – no waiting, no saving, no budgeting, just pick up the goods and pay for them later. It’s changed the way we perceive credit and changed the way we view our purchases. No longer do we have to have a savings mentality, we can spend, spend, spend and just pay it back while we are enjoying it. This is great if you are disciplined and can do it. Did you know that phones and telecommunication companies have the highest default rate? This indicates to me that people want the latest phone, get the latest phone and then lose interest in paying if off so stop making the payments and probably change to another telecommunication company and do the same again.  But let’s focus on Afterpay and Zippay for now.

If you don’t have enough money to buy something you want now, ZipPay and Afterpay are payment methods that allow you to “buy now and pay later without interest”, which is similar to a Layby. They generally have a monthly administration fee but they aren’t loans or credit cards. They can however affect our credit rating if you don’t make the repayments on time.

What do I mean by this? Well, your credit rating or credit score is determined by how well you manage your money in terms of paying your bills on time and pay off any money you have borrowed. Credit ratings are used by banks to decide whether they should lend you money, how much to lend you and what interest rate to charge you. Making a lot of credit enquiries, ie asking lots of lenders if they will lend you money also has an effect on your credit rating.

Both ZipPay and Afterpay check your credit score to see what your payment history and credit behaviour has been like in the past.

Signing up for ZipPay is free but be aware that it can affect your home loan application as this type of spending could flag you as a risk for lenders, especially if you don’t pay the bills on time. Organisations report late payments to the credit reporting body and it appears on your credit file.

Afterpay is a service that allows you to buy and receive something instantly, then you can pay back the total in fortnightly instalments without interest. Signing up for Afterpay is also free and if you do choose to sign up, it won’t affect your credit score initially. However, if you miss payments or are late with payments, Afterpay may report them to a credit reporting agency, which will affect both your credit rating and your ability to secure a mortgage. Afterpay also charge late fees for late payments.

So, what should you do if you’re using Afterpay or ZipPay?

Make sure you always make your repayments on time. Make sure you can afford the repayments and live within your budget. If you’re not sure how to put together a budget, download my free budget template, or sign up for one of my workshops