I have been meaning to write and publish this article for a while now, and have deleted it many times over. As a personal finance blogger on a journey to financial independence, I’ve been hesitant to talk about my use of ‘Buy Now Pay Later’ (BNPL) companies like Afterpay. Over the last few years, there has been a lot of well-justified hate from most finance gurus around BNPL, and I’ve felt unable to share my use of it with you until now.
I first used Afterpay in 2016 very early in the BNPL days and have been a customer ever since. Prior to Afterpay I grew up watching my mum use layby programs to purchase our Christmas presents. It was a weekly tradition in our house travelling to the local shopping centre each week, lining up at the back of the store and watching her make the payment. When I became an adult and eventually mother I also used Layby programs to spread the cost of Christmas out.
So when I was first introduced to Afterpay it was pretty revolutionary for me especially given there were no pesky fees (unlike the layby programs I used), and it was so much more convenient. Since my first purchase in 2016 I’ve continued to use Afterpay and other BNPL companies infrequently for large purchases, and even more controversially I plan to continue to use them.
What is Buy Now Pay Later?
At the time of writing this, there are over 10 companies offering BNPL payment services in Australia (with the major players being Afterpay, Zip, Humm, Klarna, and Latitude Pay). Similar to layby these services allow you to purchase a product, and pay it back in interest-free installments. The big difference between BNPL and layby is that you get to enjoy your purchase without paying for it in full.
So why do I use them?
We have a tight budget and we pay ourselves aka our investment accounts first which sometimes leaves us very little room in our weekly budget if a large purchase is suddenly required.
We try to foresee large purchases and put aside money for items in advance in sinking funds (for example our renovations). But sometimes things happen earlier than expected, are costlier than our sinking funds, or are something we didn’t foresee ourselves needing to pay for at all.
We know we could wait and divide the total cost of it up and then save the amount each week for it instead of using BNPL. But I’ll be honest it’s not always convenient to wait, and I will do pretty much anything to avoid using my emergency fund or temporarily stop investing.
A recent example of us using BNPL was for our Airbnb renovations.
The circumstances leading to this decision were that we didn’t have the funds to purchase a vanity upfront. This lack of funds was due to our renovations being more expensive than expected and we subsequently ran out of funds to pay for this from our renovations sinking fund (we’ve since been rebuilding them).
Our bathroom contractor negotiated a trade discount on the vanity we needed, and they offered BNPL. We didn’t want to use our emergency funds because it wasn’t an emergency. We also didn’t want to divert investing funds temporarily so we chose to split the cost across 8 weeks with BNPL. This enabled us to continue to invest our regular amount, get the vanity, not touch our emergency fund, and pay for it within our weekly budget.
For us, utilising BNPL for this purchase suited us and our risk appetite. We were also careful to ensure that this purchase fell within a set of rules we created for ourselves. These rules aim to mitigate the risks that BNPL carries and ensure we don’t fall into the common BNPL traps.
Our 10 Rules of Using Buy Now Pay Later
These are the rules and boundaries we’ve set for ourselves around BNPL. If you choose to use BNPL you may wish to set your own rules that work for you (and keep your BNPL use in check).
- We don’t use BNPL for bills.
- We don’t use BNPL for gift cards.
- We don’t use BNPL for food/drink.
- We don’t use BNPL for entertainment.
- We don’t use BNPL for holidays.
- Only one BNPL purchase at a time.
- We use BNPL for large purchases that we were going to make anyway (all purchases are thought out, no spontaneous purchases).
- We don’t choose to buy items based on if BNPL is offered. We make sure we are getting the best price on an item regardless of BNPL.
- We must have a fully funded emergency fund that can cover any purchases in full.
- We only use BNPL companies where there are zero fees and charges (as long as we pay on time). So we avoid Zip, and others that charge you a monthly fee to use the service.
Why am I sharing my own experience on this subject?
When I started this blog I knew I wanted to be transparent with how we spend, save and use our money. So I wanted to come clean on our use of BNPL and why we use it.
I also want to be clear that I don’t encourage the use of BNPL. You can’t escape the fact that BNPL takes advantage of those who can least afford it and it causes significant pain:
One in five customers are late to make repayments and miss out on paying other bills — or have to cut back on essentials — an ASIC survey has found.
It’s a terrible statistic, and there are so many others.
Ultimately personal finance is personal and no-ones journey is the same. Do what works for you and avoid what doesn’t (and if that’s BNPL then never ever use it).
Keen to hear your views in the comments below. All opinions welcome.
If you would like to have articles like this delivered to your inbox subscribe below.