A loan comparison site has issued a warning to consumers about the dangers of Afterpay purchases as concerns over increased household debt linger.
Rate comparison website RateCity has said that Afterpay purchases made during the holiday period may be beginning to catch up with consumers.
RateCity money editor Sally Tindall believes that the Afterpay method encourages “impulse buying”, which could hinder consumers’ ability to manage their debt.
“The problem with Afterpay is it encourages impulse buying. It gives you instant gratification, even when you don’t have enough money in your bank account,” Ms Tindall said.
“For a lot of shoppers, Afterpay takes their bank balance out of the decision-making process, which is what retailers want.”
According to RateCity, the 1.1 million Australians using Afterpay are faced with up to $69 in fees.
Afterpay users are also subject to a $10 fee if a payment bounces and a $7 late fee if a user hasn’t paid the installment on their debt within seven days.
The RateCity analysis also reported that of the 85 per cent of Afterpay users who repay their debt using debit cards, 65 per cent are faced with an overdraft fee of up to $30 ($15.75 on average) if their account balance falls below zero.
RateCity also warned that the 15 per cent of consumers who use their credit cards to repay Afterpay installments could pay interest rates of up to 24.99 per cent, with the average consumer paying 16.91 per cent in interest.
Ms Tindall claimed that the lack of credit checks required before accessing the Afterpay service is leaving at-risk consumers with further debt woes.
“It’s also concerning that there is no comprehensive credit check carried out,” the money editor said. “This is a service that targets shoppers already short on cash. It’s these people who are most vulnerable to missing repayments.”