Afterpay is a relevantly new “buy now, pay later” phenomena which makes paying for items that you can’t afford easier than ever. It is extremely popular among millennials who see credit cards as a service that can get them into financial trouble and it certainly have some benefits, but is it worth using?

What is Afterpay?

Afterpay is like a loan, but it is a lot easier to secure. Unlike with a loan, there are no extensive background checks, however for some new users, you may have limits on how much you can spend with them when you are first starting out. 

Gone are the days of “laying-by” items and saving up for them, Now you can pay for them with Afterpay and receive your desired item immediately. Afterpay will break the cost of your purchase into four payments which you will then automatically pay fortnightly.

What are the pros and cons of Afterpay?

Afterpay does not charge you interest which is why millennials are preferring their service over using a credit card. They do however charge late fees and you can’t choose when you need to pay them back, the money will be automatically deducted from your bank account.

It is relevantly easy to get an Afterpay account which is good for people who really need an item that day but can’t afford it outright. However, for someone who is bad with repaying back debt, having such easy access to purchase items they cannot afford may be a bad thing.

Afterpay also encourages impulse buying, whereas back in the day when you didn’t have money to afford something, you would need to save up and in that time, you may have lost interest in the item, saving you plenty of money in the long run.

Should you use Afterpay this Christmas?

If you are good at paying back debt, you know that you have enough money coming in and you are sure about the item you are purchasing, then you may consider using Afterpay.

However, in general I recommend that you work towards having some savings and an entertainment/shopping budget so you can purchase the gifts that you need to buy with minimal stress and no debt.

In an ideal world, you would put 50% of your wage towards living expenses and the necessities, 30% towards saving or paying off debt and 20% towards entertainment and shopping. 

I would also recommend starting your Christmas shopping early so you can shop around for sales and you beat the Christmas rush.

Spacing out your purchases can also help save you from using Afterpay or your credit card.

In short, be wise when spending money that you don’t actually have. It is a lot better to have savings that you can use without the stress and to make informed purchasing decisions. 

Gerry Incollingo is the MD of LCI Partners, a firm that specialises in accounting advisory, lending, wealth, property, insurance and legal.

With over 30 years’ experience, Gerry has managed the financial affairs of a diverse client base and his key focus in the day to day contact with management of the business to help grow the profitability and strength of his clients going forward.

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