When Brooke Haebich and her partner had their first child, they struggled to buy groceries, but initially thought they had found a lifeline in Afterpay.
They started buying $200 gift cards for Woolworths or Coles with buy now, pay the scheme later, and then paid the amount in four semi-monthly installments of $50. But after a while, paying for necessities through borrowing was like getting stuck in a revolving door, says Haybitch.
“It’s a life saver at that moment,” she says from her home in Wangaratta. “But then your paycheck starts to pay off what you spent, and then the cycle begins; you don’t have enough money to buy groceries, so you use Afterpay again to get another card.”
Financial advisors say more and more people have turned to BNPL’s services to purchase essentials such as food, gasoline and bills since gasoline prices suddenly rose in February. They expect the numbers to rise further as cost-of-living pressures intensify.
Claire Tacon, financial advisor at the Center for Consumer Action Law, says an increasing number of people calling the National Debt Helpline have been plunged into a debt spiral after switching to BNPL, leaving them in a worse financial position than they were before the scheme began. .
“The payments to these accounts are always directly debited, so the company gets the money first, and then people don’t have enough to feed themselves and take care of their health, so they keep re-borrowing,” she says.
Sometimes Haebich says she and her partner would spend two or three different postpaid installments directly from their account to pay for different grocery gift cards. This ate their fortnightly budget, causing them to fall behind on rent and bills.
The head of the Australian Securities and Investments Commission, Joe Longo, said last week that cost-of-living pressures had pushed people towards potentially harmful sources of marginal credit, including BNPL.
As of June, there were 5.9 million active BNPL accounts in Australia. Demand for BNPL services slowed in the September quarter, according to Equifax, but was up 10% from a year earlier.
The consumer group found that one in seven BNPL users took more than 20 loans last year.
Deb Shroot of Financial Counselling Australia says BNPL services are becoming an attractive option because they are not required to carry out credit checks as per the standards of responsible lending laws.
“The problem is with this [the companies] They don’t actually check that the people who use their products are actually able to pay off the loans they take,” Schrute says.
Several people, including some who receive a subsidy, told The Guardian Australia that companies often ask if they want to increase the borrowing limit beyond what they thought they could afford.
“They kept offering to raise the cap every time I paid it off,” says Naomi Thompson, who lives off JobSeeker payments sometimes supplemented by casual work. “But the minimum reimbursement is going to go up beyond what I can afford at JobSeeker, so it’s not going to be helpful or helpful to me.”
Haybitch says she knew using Afterpay wasn’t a smart financial option when she was in a rut, but she felt like “a carrot was hanging in front of her” when her cap was increased.
Zip, another BNPL provider, says it runs customer credit checks and does not increase limits unless requested by the customer.
Afterpay says it increases limits if customers pay on time, but they can always contact customer service to reduce the limit.
A spokesperson for the company said the company did not run credit checks, but unlike credit cards it froze a customer’s account once a payment was not made. In the second quarter of this year, they said 98% of Afterpay purchases incurred no late fees and 95% of installments were paid on time.
The Australian Financial Advisory and Consumer Action Law Center argue that BNPL providers must adhere to the same responsible lending laws as other credit providers.
Afterpay says it is regulated as a member of the Australian Finance Industry Association Limited.
Both Zip and Afterpay have adopted the Buy Now Pay Later Code of Practice, which an Afterpay spokesperson said has standards that go beyond traditional credit standards.
Both Zip and Afterpay say they have a financial difficulty program that allows customers to continue with a payment plan if they struggle to make payments.
Highbeach, who is now working on a payment plan to pay off her debts after payment, says she still sometimes uses Zip to buy groceries.
“We would have woken up otherwise had we not used Afterpay, so I don’t blame them for being in this situation,” she says.