BNPL is a bad choice for young Australians – we expose the debt traps and financial risks

October 14, 2024
Written by
woman holding magnetic card
Photo by Blake Wisz on Unsplash

Buy now, pay later (BNPL) services are gaining popularity among young Aussies. These schemes let you split payments for purchases over time. While they might seem handy, they can lead to financial troubles.

Many young Australians are struggling with money, yet 27% used BNPL in the past year, according to The Conversation. This trend is worrying. BNPL can make it too easy to overspend and rack up debt.

BNPL lacks the safeguards of traditional credit. It’s quick to sign up and start spending. But if you miss payments, you face late fees and potential harm to your credit score. For young people still learning to manage money, these risks are serious. BNPL might seem harmless, but it can trap you in a cycle of debt if you’re not careful.

Impacts of BNPL on your financial situation

Buy Now, Pay Later (BNPL) services can have big effects on young Aussies’ money health. These services change how people spend and borrow cash.

Encouragement to spend more

BNPL makes it easy to buy things on a whim. You might grab items you don’t really need or can’t truly afford. The quick, simple process tempts you to spend more than planned.

BNPL often shows up at online checkouts. This puts temptation right in front of you when shopping. You might think, “I’ll just pay it off later,” without really planning how.

The lack of upfront costs can make purchases seem less real. This can lead to overspending and budget problems down the track.

Potential for debt accumulation

BNPL can pile up debt fast if you’re not careful. Each purchase adds a new payment plan to keep track of. Before you know it, you might have several going at once.

Missing payments can lead to fees and interest charges. These extra costs add up quickly. You could end up owing more than you first thought.

Young Aussies often use BNPL when money’s tight. This can start a cycle of borrowing to cover basic needs, making it hard to get ahead.

Credit score implications

BNPL can affect your credit score, which matters for future loans. Some BNPL companies report to credit bureaus. Late payments could hurt your score.

Taking on too many BNPL plans might look bad to lenders. They might see it as a sign you can’t manage money well. This could make it harder to get a home loan or car finance later.

On the flip side, some BNPL services don’t report to credit bureaus at all. This means you’re not building a credit history, which can be important for young people just starting out.

Regulatory concerns

The BNPL sector in Australia faces scrutiny over its lack of strong rules and potential risks to users. Changes are coming, but gaps still exist in protecting young borrowers.

Lack of stringent regulations

BNPL services have grown fast in Australia without tight rules. Unlike credit cards, BNPL firms don’t need to check if you can afford repayments. This makes it easy for young people to rack up debt.

The government plans to bring BNPL under the Credit Act by the end of 2024, as per ABC. This will force BNPL companies to:

  • Check your ability to repay
  • Join the financial complaints system
  • Follow lending standards

But some worry these new rules won’t go far enough to protect young users from getting into trouble.

Consumer protections at risk

Current BNPL rules leave gaps in safeguarding users. Key issues include:

  • No caps on fees or charges
  • Limited credit checks
  • Weak safeguards against financial abuse

About 27% of young Aussies used BNPL in the past year. Many struggle with repayments. Without strong protections, young people risk falling into a debt trap.

Experts say BNPL needs tougher compliance checks to shield young users. This includes:

  • Stricter lending criteria
  • Clear fee disclosures
  • Help for users in financial stress

Psychological effects on young consumers

Buy now, pay later services can have big impacts on the minds of young Aussies. These effects often go beyond just money worries.

Instant gratification culture

BNPL schemes feed into the desire for quick rewards. Young people can buy things right away without waiting to save up. This creates a habit of wanting things now rather than later.

The ease of BNPL can lead to impulse buying. You might grab that new phone or outfit without thinking it through. Over time, this can make it harder to delay purchases or save for bigger goals.

BNPL also blurs the line between wants and needs. You might start to see non-essential items as must-haves. This can make it tough to budget and prioritise spending.

Stress and anxiety from debt

Juggling BNPL payments can be stressful for young Aussies. You might worry about missing due dates or not having enough money in your account. This stress can build up over time and affect your mental health.

27% of young people used BNPL services in 2022. Many of these users might feel guilty or ashamed about their debt. You could start to avoid checking your bank balance or opening bills.

The pressure of BNPL debt can impact other areas of your life. You might lose sleep, have trouble focusing at work or uni, or feel anxious in social situations. Some young people even cut back on essentials like food to make BNPL payments.

David Ryckman

Senior contributor and editor of Carousel Bondi. If he isn't writing or reading, you will find him down at Bondi Beach. Stories and pitches via editor@carouselbondi.com.au

Nathan Cleary. Credit: Alamy.
Previous Story

Nathan Cleary’s net worth – one of the highest paid NRL players