Watchdog flags payment risks for consumers ahead of Christmas season.
With Christmas less than four weeks away, credit card providers have redoubled efforts to get new customers spending up big by extending interest-free periods.
At the same time, the corporate watchdog has released its first report into the ‘buy now, pay later’ platforms that are eagerly being taken up by Aussies.
The Australian Securities and Investments Commission (ASIC) says Australian shoppers owe almost $1 billion to Afterpay, zipPay and its competitors.
Meanwhile, RateCity.com.au has revealed there are 15 zero per cent credit card deals, currently offering interest-free periods of up to 15 months.
The most generous offer is the Coles Mastercard which will not charge interest for 15 months, but after this time, expect a rate of 19.99 per cent. This card has no annual fee.
Bank West’s Breeze Classic card reverts to the lowest rate, 12.99 per cent, with zero interest available for 13 months. The bank charges an annual fee of $79 for this card.
NAB’s Low Rate Premium reverts to 13.99 per cent after nine months. The annual fee for this card is $100.
The Amplify Classic card offered by BankSA, Bank of Melbourne and St Georges Bank extends free credit for 14 months and then charges 19.49 per cent and an annual fee of $79.
Virgin Velocity Flyer card also has a 14-month interest free period. But its rate reverts to 20.74 per cent and comes with a hefty $129 annual fee.
This data was correct as at 27 November, 2018, RateCity.com.au said.
The comparison site’s research director, Sally Tindall, said that while interest-free purchase cards can be tempting, they should be approached with caution.
“Being able to shop for Christmas and not have to pay a cent of interest until February 2020 is an incredibly attractive proposition … until you have to pay it back,” she said.
“Lenders are counting on customers to go silly in the holiday season and put more purchases on the card than they can afford to repay, leaving them with a costly debt hangover. And the interest rates on these cards can often carry a pretty big sting.
“If you do take out one of these cards, set yourself a strict limit and set up a fool-proof plan to pay every cent back, within the interest-free period.”
Also issuing a warning about the temptation of cash-less shopping was ASIC, in a report that revealed Australians owe buy now, pay later platforms $903 million.
ASIC reviewed the payment arrangements of Afterpay, zipPay, Certegy Ezi-Pay, Oxipay, BrightePay and Openpay.
“While some buy now pay later providers offer fixed term contracts up to 56 days for amounts up to $2000, other providers offer a line of credit for amounts up to $30,000,” ASIC said.
It found that the number of consumers who have used buy now pay later has increased five-fold from 400,000 to 2 million between July 2015 and June 2018. The number of transactions has increased from about 50,000 during the month of April 2016 to 1.9 million in June 2018.
ASIC commissioner Danielle Press said that although the review found many consumers enjoyed using these arrangements, there are some potential risks for consumers.
“We found that buy now, pay later arrangements can cause some consumers to become financially overcommitted and liable to paying late fees,” she said.
One in six users had either become overdrawn, delayed bill payments or borrowed additional money because of a buy now pay later arrangement.
Given the potential risks to consumers, ASIC says it wants extra powers to regulate these providers that currently are allowed to bypass compliance with credit laws.
Will you be using interest-free credit cards or buy now, pay later platforms to buy your Christmas presents? Which payment method do you prefer? If you use one of these arrangements, what tips do you have for other users to avoid a big debt trap?