Australians are seeking Buy Now Pay Later (BNPL) loans to cover basic necessities like groceries and rent at an alarming rate as their empty bank accounts make it a struggle to survive.
“A lot of people get into trouble, they use credit cards to pay off these loans, they skip meals, they skip other essential bills or utility bills,” says Patrick Veyret, senior policy adviser for consumer group Choice.
One in five people have used a BNPL service to pay for household items like groceries and rent in the past year, according to data from the consumer advocacy group.
But major industry players argue the move reflects a generational shift away from credit cards.
“Consumers have been using credit cards in supermarkets and for other everyday expenses for decades,” said an Afterpay spokesman.
Angliss Meats in Townsville launched the small loan program just two weeks ago, but at least 50 people have already taken up the offer.
“It brought in a few extra people,” said butcher Ryan James.
“They’re just really happy that we have it now.
“They can pay for their groceries a little more easily.”
There’s a $100 minimum spend at their Burdell store, but with meat costs soaring, Mr James believed BNPL was a big selling point.
“A lot of people don’t even tell us they’re using it, some of them just tap their card,” he said.
Calls to close the loopholes
BNPL services are largely unregulated as providers are not legally required to screen borrowers for loan repayment.
“We’ve heard from financial advisors who help people in debt that some people have 10 or 11 loans,” Mr Veyret said.
“One person had to pay 11 loans every two weeks and that’s because these new lenders don’t have to do proper credit checks.”
He said borrowers who failed to make payments on time faced hefty penalties.
“Most providers charge late fees, and research we’ve seen shows that sometimes these late fees actually mean that ‘buy now, pay later’ is more expensive than a credit card,” he said.
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,” said Mr Veyret.
“There are some views that buy now, pay later is the golden child, when in reality they are an unregulated lending service and we are seeing payday lenders trying to capitalize on that.”
Choice has joined global calls to regulate the industry as the cost of living rises.
make the rent
The smaller loans have also been expanded to include regular payments such as rent.
Real Estate Institute of Queensland (REIQ) chief executive Antonia Mercorella said it was a worrying trend, caused by rising rental costs.
“We’re starting to see people offering above the asking price for rent, which could lead to people offering money that isn’t necessarily affordable for them,” she said.
Ms Mercorella said although reliance on BNPL loans to meet rent has not been widespread so far, she feared it was about to get worse.
“These programs are becoming more and more attractive,” she said.
“Of particular concern is the way these systems are being used to pay for essentials.”
reflect generational change
In a statement, an Afterpay spokesman said the service is available in a growing number of retail categories, including daily spend.
“Since the start of the COVID pandemic, over 1.1 million consumer credit cards have been canceled as consumers increasingly turn to safer alternatives like Afterpay,” they said.
The organization said it launched customers with very low spending limits and that users would have to make their first repayment up front.
“Post-payment spending limits only increase based on a customer’s repayment history,” the spokesman said.
Take care of the ebb and flow
Last week, finance provider FuPay signed a deal with retail giants IGA, Foodworks and United Petroleum to provide short-term loans of up to $500 for basic necessities like bread and milk.
“We actually have a solid understanding of our customers’ financial status and have all of their bank details to help us determine if they can afford to borrow and if it’s causing harm when using our service,” said Betsy Westcott, Chief Revenue Officer by FuPay.
Ms Westcott said borrowing to cover living expenses is not new.
“People have used credit to pay for everyday goods and services with credit cards for decades,” she said.
“What’s different now is that the younger generations aren’t using credit cards.
“Access to credit is very important to smooth the daily ups and downs of your cash flow, and if you don’t have a credit card, how do you do it?
“That’s where these mini-credits that are made available upon purchase come in.”
She said it can help people save money in the long run.
“They could make the most of a special or volume discount,” she said.
“If fuel prices are on a good day, that’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.”