Debt traps in ‘buy now, pay later’
Retailers are increasingly offering “buy now, pay later” terms for the purchase of goods but the trap for the consumer who can't pay within the agreed time is a skyrocketing interest rate – sometimes 26 per cent or more.
Consumer groups warn buyers of goods such as major household items or cars to look at the substantial risks of deferring payments for up to two years. The Australian Consumers' Association says such credit is equivalent to personal loans and attracts “punitive interest rates of 27 to 28 per cent”.
Often, the high interest applies right back to the date of purchase if payment is not made in full before the end of the interest-free period, Infochoice warns.
The ACA says these offers can be fantastic deals for people who disciplined with payments but carry a large risk for those who aren't or can't afford.
The NSW Minister for Fair Trading says he's keeping “a close eye” on store cards and in-house finance. The ACA also objects to finance companies offering purchasers cards with draw-down facilities, a very expensive form of revolving credit.