Afterpay, Credit Cards, Personal Loans - the use of credit in Australia. A general layman’s chat.

[rdhopkins2]

The ability to obtain credit in Australia has seemingly never been easier. The lure of marketers spruiking buy now, pay later sees many Australians fall in to financial traps.

Many big companies have for a long time offered “buy now, pay later,” interest free terms on store cards. We have had credit cards in Australia since the 1970’s. There is now Afterpay, Zippay and I’m sure there are many others out there.

Back in the day, if you couldn’t afford to pay for a product upfront, stores offered lay-bys where you would pay the product off in instalments BEFORE you could take the product home.

Can’t afford a new car? Well that’s okay says the car salesman, we can help with the finance too.

Has Australia become so used to instant gratification that the use of credit is normal, even for small purchases (hey I’ll just whack that on the credit card or an afterpayment method…)


Has Australia become so used to instant gratification that the use of credit for anything is normal?

Does credit in Australia need to be more highly regulated?

Note, this is not intended to discuss mortgages. I’ll make a separate one for that.

 

[Gigantic]

Has Australia become so used to instant gratification that the use of credit for anything is normal? Yes

Does credit in Australia need to be more highly regulated? Yes

On most household debt indicators, Australia leads the way

Even amongst comparable English-speaking countries where legal and financial systems are similar, you would think there's a similar attitude to debt. That may be true to some extent, but Australia's household debt to income figures makes it looks like our attitude is on steroids in comparison.

 

[rdhopkins2]

Has Australia become so used to instant gratification that the use of credit for anything is normal? Yes

Does credit in Australia need to be more highly regulated? Yes

On most household debt indicators, Australia leads the way

Even amongst comparable English-speaking countries where legal and financial systems are similar, you would think there's a similar attitude to debt. That may be true to some extent, but Australia's household debt to income figures makes it looks like our attitude is on steroids in comparison.

Interesting charts there. Wow look at Ireland. Australians playing with fire? What happens when rates rise? Hopefully people wise up.

 

[Gigantic]

Interesting charts there. Wow look at Ireland. Australians playing with fire? What happens when rates rise? Hopefully people wise up.

I'm sure RBA are conscious of the sensitivities of household debt on the state of the economy. That and the Aussie love affair with property.

Also, hopefully inflation will help eat away at some of that debt.

 

[Caesar]

That graph doesn’t really illustrate a problem with the type of debt being discussed in the OP

 

[Gigantic]

That graph doesn’t really illustrate a problem with the type of debt being discussed in the OP

Fair point.

With household savings rate increasing after COVID with not much to spend on, wouldn't be surprised if personal debt levels have even fallen somewhat, at least proportionally to housing debt.

 

[raskolnikov]

Afterpay sounds like a good option in theory and I use it a bit but I then always end up paying it off early anyway.

 

[MatthewB]

Afterpay sounds like a good option in theory and I use it a bit but I then always end up paying it off early anyway.

we do as well, the wife always ends up paying them off early and we have a rule, never more than 2 going at once

 

[74561347]

 

[Engimal v3]

Afterpay sounds like a good option in theory and I use it a bit but I then always end up paying it off early anyway.

I bought a refurbished Surface Pro using Zip, and it's great. I get 3 months interest free, so I can pay only around $150 each month and pay it off without any additional charges.

I guess the issues come when people agree to repayment plans that they can't afford.

 

[SBD Gonzalez]

With credit, because you are paying money to borrow money, the one thing you need to understand (and which you should never forget) is that there is Good Credit, and there is Bad Credit.

Good credit = paying money to borrow money to buy something that should increase in value (eg most house purchases) such that the increase in value of the item more than outweighs the cost of the credit.

Bad credit = paying money to borrow money to buy something that drops in value the moment you buy it (best example being most car purchases) such that you end up paying much, much more for something that has done nothing but become worth much, much less.

With cars in particular, the rule should be that you should buy the newest car you can afford to buy with cash.

There may be a utility value to consider (eg you HAVE to have a car to get to your job, which you need in order to earn the money you need to to pay off the loan) but that is the rule you always should try to follow.

Never borrow money to buy an asset that will only ever depreciate.

 

[Upgrayedd]

I think Credit/Debit interest rates ect. Have just been marketed to people who don't really have financial literacy

Debt isn't *bad* However when companies are selling loans like Afterpay, Zip pay, ect. It will generally trick people.

 

[rdhopkins2]

Interesting article. The interest rates are ridiculous.

“The rise of ‘pay on demand’ apps offering users advances on their wages such as MyPayNow and BeforePay has sparked warnings from consumer advocates who fear the emerging sector resembles payday lending and could trap vulnerable users in debt.”

‘Up there with pay day loans’: Calls for crackdown on wage advance apps

“Nobody likes waiting” is the slogan salary based buy now, pay later startup MyPayNow broadcast across prime time television as a sponsor of top rating show Married At First Sight.

www.theage.com.au