David Johnson said you should reconsider your buy now, pay later use from today as new regulations kick in for the industry. (Source: Supplied/AAP)
Australians who use buy now, pay later (BNPL) services have been warned new regulations coming into force from June 10 could have huge implications on their future. While these platforms have been game-changers for people running a little low on cash, they’re now operating under the same rules as credit cards and personal loans.
That means services like Afterpay, Klarna, and Zip will conduct stricter checks before giving you the money, along with more oversight and big consequences if you don’t stay on top of repayments. David Johnson, CEO of credit reporting firm Talefin, told Yahoo Finance these new laws could push many away from using BNPL services.
“If you have any doubt about your ability to make repayments, you should reconsider using BNPL,” he said.
His warning stems from how missed payments will now impact your credit score.
Up until today, BNPL platforms weren’t forced to report your payment history to big credit score firms like Equifax or illion.
Lenders can use your credit score to determine whether you’re a suitable candidate for a mortgage, personal loan, or credit card.
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BNPL can already be a red flag for some lenders, whether you’ve kept up with all your payments or not.
However, this update will mean lenders will have even more information about how you handle cash advances. These platforms will now have to report every misstep, stumble, or rough month.
“If possible, try to make sure you have more capacity than you need to repay debts, because you never know when unexpected bills might arise,” Johnson told Yahoo Finance.
“The biggest potential impact on your creditworthiness will be your failure to meet your repayment obligations.
“If you do run into trouble making repayments, over-communicate with your credit provider.
“If you are getting into a hardship scenario, more often than not, they will work with you to remedy the situation.”
Applying for a BNPL service will also be harder from today.
For some of the platforms, you only had to fill out a few details and tick a few boxes before you had the money in your account.
But now these providers will have to assess your ability to repay before approving your request.
They will follow the same rules as credit card companies and lenders by looking at your income, expenses, and existing debts.
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This is designed to stop people from falling into debt traps that they can’t crawl out of.
Australians have been using BNPL services a lot in the last few years to get ahead in the cost-of-living crisis. (Source: Getty) · Rafael Ben-Ari via Getty Images
Finder research released last year found 41 per cent of Australians had used BNPL in a six-month period.
Gen Z and Millennials were the most likely to use these services compared to older generations.
Shockingly, one in three had missed another bill in order to afford their BNPL repayments, while 12 per cent had gone as far as skipping a meal.
The University of Sydney found approximately 40 per cent of BNPL users operated more than one BNPL account, which can increase the risk of overextension and financial stress.
Afterpay also reported more than 10 per cent of surveyed users were advised to close their BNPL accounts and subsequently qualified for a mortgage or were offered a credit card.
The government wanted to bring these BNPL services in line with other credit providers.
Assistant Treasurer Stephen Jones said it gives these platforms “clear obligations” to ensure “vulnerable consumers” don’t get credit when they shouldn’t.
He added that it will also result in enhanced requirements for transparency in fees and charges to help Aussies understand the full cost of these services.
It’s also aimed at creating a level playing field across the credit industry.
Johnson told Yahoo Finance that you should check your BNPL platform’s privacy policy to see whether they report to Equifax or illion.
They are two of the most popular credit reporting firms and are used by a raft of lenders and credit card companies.
“If you find you are struggling to access credit for a more substantial purchase (such as a home loan), make sure you understand why,” he said.
“For example, do you have a good credit history? Are you asking for an amount that you can service?
“If you are not having success with a mortgage broker, try working directly with a credit provider or lender.
“Most credit providers will use a score to filter consumers through their broker network, but they will often apply different criteria to direct customers.”
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