Buy now, pay later deals 'can have sting in tail'

Buy now, pay later deals that come with an interest-free 'honeymoon' period can be extremely tempting to shoppers - but if they fail to manage the debt or do not pay it off before interest starts to accrue, consumers could end up paying a lot more than they bargained for.

Ratings agency Cannex told Adelaide Now that some finance deals might seem attractive because of their "substantial" interest-free offers, but if they still have an outstanding balance when these offers come to an end, shoppers could be "slugged" by interest rates of up to 30 per cent.

This could be particularly painful if consumers have put off making repayments until the interest-free period ended, the company said.

When considering taking out store finance, therefore, Australians should consider their options as there may be a more cost-effective solution.

The site said a personal loan, for example, taken out for $10,000 with an interest rate of ten per cent would incur monthly repayments of $322, which would clear the outstanding debt within three years. The total cost of repaying the loan would be $11,616, it added.

However, a store finance deal for the same amount - with half the debt cleared during the interest-free stage - would incur interest rates of 28 per cent. This would result in monthly repayments of $686 for 18 months, if the debt was to be entirely cleared within three years.

Furthermore, if the borrower did not clear any of the debt while it was interest-free and then only made minimum repayments, they would still be carrying a debt of $9,000 after three years.

At this rate, it would take 31 years for the deal to be paid off, the site concluded.

According to the Australian Bankers Association, consumers should always draw up a budget before applying for credit to ensure they can take on the debt and manage repayments.

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