From Afterpay to Zipmoney: How ‘buy now pay later’ products work

In years gone by, people who wanted to buy something they couldn’t quite afford had to put it on lay-by \] or, more unusually, rack up a debt on their credit cards. Now, though, there are a myriad of options when it comes paying for your purchases at a later date while, unlike lay-by, allowing you to take the item home immediately.

These interest-free finance options have become commonplace in recent years as shoppers look for new and better ways to pay for their creature comforts. And it’s not just low-cost items such as clothes and cosmetics that can be purchased using buy-now-pay-later, you can even spread the cost of bigger expenses over months or even years, including the likes of some health care services and even the installation of solar panels.

One of the main benefits of using these products is the fact that, like credit cards, they don’t immediately attract an interest charge, with credit providers allowing shoppers to agree a timeframe of a few weeks – or longer for larger purchases – to pay off the full cost. All you need to do is sign up with your chosen provider, make your purchase and pay back what you spend within an agreed timeframe.

That said, the old saying that nothing in life is free is as true for buy-now-pay-later products as anything else. There are costs involved that it’s important to be aware of if using the products.

What are the big names in buy-now-pay-later?

There are many options, but some of the best-known include:

• Afterpay – Free to use and can be used for online and in-store purchases. Afterpay requires repayment to be made in four equal, fortnightly instalments.
• zipMoney – Allows users to immediately borrow between $1,000 and $30,00o in cash, that can then be used at any zipMoney-accepting retailer, both online and in store.
• zipPay – Users can sign up for an interest-free line of credit of up to $1,000 to spend online or in-store. Payments can be made weekly, fortnightly or monthly and a minimum monthly payment of $40 is required.
• Openpay – Can be used to shop in-store and online, with no need to obtain pre-approval for purchase amounts. Repayments are required in fortnightly instalments.
• Certegy Ezi-Pay – Offers two credit cards that differ from standard cards in that they  offer extended interest-free repayment periods of between six and 48 months.
• Oxipay – Allows users to repay money spent with approved venders over two months, in four fortnightly instalments.
• Brighte – Allows users to spread the cost of home energy installations and home improvements, such as the installation of solar panels or a new air conditioner. You must be a homeowner to use the service, which doesn’t attract interest charges.

Are they really interest-free?

Yes, they are interest free – as long as you are able to keep up with your repayments.

If you are shopping online, you’ll be able to apply for and set up a purchase plan through the provider’s website or app. For those shopping in store, a shop assistant should be able to set up your account with the retailer’s preferred buy-now-pay-later scheme on your behalf. As long as you pay back the required amount on time, the zero percent interest deal applies.

However, you should be aware that there are other charges associated with these payment methods.

What do I have to pay?

Many of these accounts come with a monthly ‘management’ fee, which is usually around $3. These payments must be made in order to keep your account open. Some providers, such as Afterpay, however, do not charge set account management fees and operate as a free service, but instead charge the retailer for being permitted to offer the service.

Another cost to bear in mind is the possibility that you may be required to pay a processing fee. This is a fee for each payment, charged on top of your set repayment amount.

There is also the associated risk of late fees that occur every time you miss a payment, making it is crucial that you ensure you have enough money in your bank account to cover the cost of the regular repayments before making a purchase.

If you do not and the payment fails, you will be charged a late payment fee. There is then also the risk that you may be charged an overdrawn fee by your bank, adding to your total debt.

Anything else I should know?

Some of these sites do not conduct a credit check before allowing you to sign up, which means you could end up taking on more credit than you can afford to replay, and thus have trouble making your repayments. Any late payments could then be reported to a credit reporting agency, which could negatively impact your credit score.

Have you used any of these products? Do you think buy now pay later is a good idea?

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.