“Often these are essential expenses like household bills and utilities, and even food. The problem with payday loans is that they tend to make the person’s situation worse.
“Because the repayments can be high, they may find themselves without enough money after the levies come out, which means they then turn to another loan, hence the debt spiral.”
Financial Counseling Australia says people struggling with buy it now and pay later debt to companies, including AfterPay, make up a rapidly growing proportion of people in financial difficulty.
Advisors told the tech body there was a growing trend for families to buy supermarket gift vouchers with buy now and pay later products and use them for food and other essentials.
A report released on Wednesday by research house RFI Global showed that 38% of Australian consumers would use paid apps for household bills, 37% for groceries and 27% for petrol.
“These data suggest that people are increasingly relying on credit for basic expenses, which is concerning from a financial distress perspective,” Brody said.
Federal Treasurer Josh Frydenberg and his Labor counterpart Jim Chalmers highlighted the estimated $245 billion in household savings accumulated during the pandemic. But Sandy Ross, chief executive of Financial Counseling Victoria, said many Australians were in dire financial straits.
“That’s what happens when you have stagnant wages for a very long time and you have Centrelink below the poverty line,” Dr Ross said. Age.
“We have a huge number of people struggling. These people are vulnerable to payday loans, then immediate purchase and subsequent payment arrives [when] people are desperate, they have no other choice, what are they going to do?
“They will try to access everything they can, try and even get the most basic things they need to live.
“Financial advisors are seeing a worrying expansion in the use of buy it now, pay later in particular, for very basic needs.
“This massive and rapid growth of customer customers with [buy-now-pay-later] debt problems, this trend line has spiked over the past two years.
Cash Converters managing director Sam Budiselik said growth in his company’s loan portfolio was driven by the broader economic recovery, as the loan portfolio grew from a relatively low base. But he does not expect such strong growth to continue.
Mr Budiselik admitted that households often turn to lenders to manage their budget, but said borrowers took on more risk when taking on debt to buy now and pay later than when dealing with Cash. Converters, which is covered by consumer credit protection laws.
“It is because of these strict standards that we deny more than 70% of loan applications based on suitability,” Mr. Budiselik said.
“Our understanding is that buy-it-now, pay-later and earned-wage access providers are not held to the same standards, operating instead under exemptions to the Credit Law. Therefore, our view is that regulated credit is not the primary cause of harm.
But Diane Tate, chief executive of the Australian Finance Industry Association (AFIA), which represents AfterPay, Zip and six of the biggest buy-it-now providers, defended the industry’s performance on consumer protection.
“What is vitally important is making sure consumers are protected when things go wrong,” Ms Tate said.
“AFIA urges consumers to seek out buy-it-now, pay-later providers, buy-it-now, pay-later code signatories to ensure they have access to higher consumer protections. , such as access to hardship provisions and applicable standards in the event of a problem.
“It’s important to note that the payday loan and payday advance business is not a buy-it-now, pay-later business.”
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