We all experience times in life when we just can’t wait to get our hands on that shiny new item. But as the old saying goes: good things come to those who wait.

Afterpay is the largest buy now, pay later scheme in Australia.

In fact, Afterpay had more than $1.45 billion pass through its platform in the first three-quarters of last financial year.

It boasts more than 1.8 million customers, who mostly use it for online apparel shopping, and 14,000 retailers under its wing.

The reason for Afterpay’s rapid rise is its interest-free, instant purchase business model.

To qualify, all a customer needs is a debit card, enough money for the first instalment and no proof of income. Customers then pay the final three instalments a fortnight apart.

The risks

Interest-free. Instant. Too good to be true?

Here’s the thing. As you can make many purchases with Afterpay without proof of income, before you know it you could adopt bad spending habits and may fall into debt.

Now, late payment penalties are capped at $17. But if you’ve made multiple purchases and you’re defaulting on all of them, the debt and fees rack up.

Here’s the real kicker

Afterpay, and its competitors such as ZipPay, are still credit liabilities and need to be disclosed when applying for a home loan.

And the banks are getting very stringent on who they lend money to these days due to the regulator crackdown.

In the current tightening lending market this could hamper your efforts to obtain a home loan if you’ve racked up quite the Afterpay bill. Especially if it’s obvious that you’re struggling to pay it off.

Additionally, the Terms of Service on the Afterpay website state:

“Afterpay reserves the right to report any negative activity on your Afterpay Account (including late payments, missed payments, defaults or chargebacks) to credit reporting agencies.”

This means that your credit score may be affected if you fail to meet repayments.

And last year alone Afterpay netted $11 million in late payment penalties.

Another way to buy

Financial independence is not about racking up debt for shopping.

It is about saving money for a rainy day, rewarding yourself with purchases when you hit savings targets, and protecting your borrowing capacity for appreciating assets – not depreciating items.

Additionally, you never know when you will need money to pay for an emergency or capitalise on an opportunity.

You or a family member may become sick, or you might want to expand your property portfolio.

For all these things it helps to have extra cash on hand.

So if you can’t afford it, don’t buy it. Sure it’s hard, but short term pain is long term gain.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.