The Hidden Hazards of Buy Now, Pay Later: Lessons from the Experience of my Clients

Many of us have tried a BNPL facility at some stage – including me. The brief moment of swagger being told you have an “interest-free” (!) limit of $X thousand…a lil’ shoppy-shop, anyone? That $600 dress for Saturday’s 40^th becomes only $150. Shoes to match were $400, so that’s only $100 – today.

Don't let BNPL debts dim your light.

Another $250 two weeks later.

Another.

And then another.

After a few of these frivolities and a couple more BNPLs – you’re in a debt cycle, and the novelty of your new outfit? Well and truly forgotten in the stark light of your bank statement.

Recently an accountant referred new clients to me to troubleshoot (their financial situation, not the clients themselves). They had an ATO debt and 3 BNPL facilities…one of which (after the interest-free period ended) was at a whopping 26%! They weren’t completely foolhardy – one BNPL was taken out for their child’s braces – braces are a big drain on the cashflow if there ever was one! Repayments had overlapped and their bank statements were all over the place. They were in a pickle.

With around $90k of debts all up they wanted to be rid of, I set about finding a solution, given the customers’ priority need being to payout the debts and start a clean slate. They weren’t struggling as such, financially. Loan and credit card payments were in order – but until I calculated their new monthly repayments, they didn’t realise just how much cash they’d been burning through by accumulating these facilities.

It turned out the rate at the lender we chose was 0.25% higher than they were on at a large bank. It’s a conversation navigated by brokers often – we act in your best interest – but being limited to a handful of lenders who are prepared to pay out ATO debts this was the solution, as their desire was to rid themselves of the cash burn and stress of managing the after-pays.

I am earnest to raise that were they paying the loan over a 30-year term, they’d be paying more interest over the life of the loan. However, with their children grown up and moving on, these clients plan to downsize in a few years. For them, this solution is suitable, because it provides the immediate cashflow alleviation needed and requested.

Here’s the relief (we will set aside the ATO debt inclusion in these figures for the purpose of demonstrating the impact of BNPLs to your cashflow):

Past position – assuming a 30-year term on the home loan:

Home loan: $623k at 6.49% à about $3,934/month

BNPL Debt: $14k à (assumed paid over 12 months) approx. $1,167/month

Total: $5,101/month

 New position after consolidating BNPL debts:

Home loan: $637k at 6.75% à approx. $4,132/month

Cashflow improvement = $969/ month

Thus, despite being on a slightly higher rate at their new lender, by consolidating the BNPL debts into their home loan, they’ve freed up almost $1,000 a month cash – not to mention valuable headspace.

This solution isn’t for everyone, especially if your long-term goal is to pay less over the life of your loan. For these clients and their first priority – it was a big win.

Wanting to rid yourself of the BNPL spiral and clean up your finances? Message or call me today: 0414864402