Beware of BNPL loans in times of hardship, Salvos warn

With inflation on the rise and cost-of-living pressures affecting more and more households, many Australians are finding it difficult to make ends meet. At the end of the week, when bills are piling up and the fridge needs restocking, there may be a temptation to take on a small loan from a buy now pay later (BNPL) lender to get through.

But before risking debt by entering into a contract with an unregulated lender, it’s important to consider the nature of these schemes and your capacity to meet the repayments. The Salvation Army’s financial counselling service, Moneycare, is now seeing more and more people reaching out for help to manage BNPL debts.

“We now see people come to us that may have 10 or more BNPL products,” says Moneycare’s Kristen Hartnett. “People do what they need to do to survive and that includes accessing more credit. At some point, this load becomes too heavy and we are grateful that they reach out to us.”

This was the case for 59-year-old Joe* who came to Moneycare after taking out a small loan to pay for food, which quickly blew out into a significant debt.

“I was desperate for food. This was my only way to secure food for a couple of weeks,” Joe explains.

Living in shared accommodation at the time and with multiple health issues, Joe was already in financial hardship when he was granted a BNPL loan to the amount of $250.

For the first few months, Joe was unable to pay anything back. When he was able to make small repayments, the disproportionate late payment fees of $101 a month had already built up. Even after the principal amount was paid, Joe was still left facing a bill that totalled $1244.60.

Joe’s Moneycare financial counsellor advocated on his behalf to the BNPL lender, providing evidence of Joe’s financial hardship, and managed to have the debt waived. Joe was also supported with additional financial counselling support and advice on other options to consider before taking out a loan for basic necessities, including accessing The Salvation Army’s emergency relief service.

The cost of living

“Often, people who come to us that have accessed BNPL services do it just to get by. We have one person who used it for nappies,” says Kristen.

“In our experiences with the people who come to us, we don’t see it being used frivolously. People use it to meet everyday living expenses and are often driven to that point by a combination of factors, such as a reduced income and high housing costs.”

When significant health issues resulted in 52-year-old Glennis* being hospitalised and needing rehabilitation, she was forced out of the workforce and onto government payments. With a noticeable reduction in income, she was finding it difficult to cover her rent, basic living expenses and food for her family. In order to get by, Glennis entered into a range of BNPL contracts, which rapidly plunged her into debts she could not keep up with.

Describing feeling “stressed, overwhelmed and embarrassed” when she realised she could not afford her repayments, Glennis says she was not aware of any other options to quickly get what she needed other than through BNPL providers.

Glennis sought the help of a Moneycare financial counsellor at the beginning of 2022, when things became too much.

“My Moneycare financial counsellor has been able to get discounts on total owing on some of my debts, along with extension in timeframes on monthly payments,” says Glennis.

Her financial counsellor also referred Glennis to emergency relief through The Salvation Army for food, fuel and financial support.

While she has received much-needed assistance, Glennis admits she is still feeling stressed and depressed due to the nature of her financial hardship. As she says, she would not have had any trouble covering her financial commitments if her health hadn’t impacted her ability to work.

Unfortunately, this is the space where many BNPL lenders thrive – making their money from a person’s inability to keep up with repayments through late fees. Glennis now has advice for anyone considering taking up the option of BNPL loans.

“Really think twice before signing up. I had a good job and income, so at the time, didn’t think much about it. However, times can change at a drop of the hat, and then the next thing you know you are in severe financial hardship and relying on the assistance from charities and family if you have any.”

Kristen has seen this scenario play out so many times for community members coming to Moneycare stressed and overwhelmed by spiralling debt. “BNPL has made massive inroads into the market. It’s totally common. People are increasingly comfortable accessing it, but we increasingly see it cause harm to people that connect with us. People often borrow to pay other debts; it becomes very cyclical.”

The true cost of living today is that many feel they have no other choice than to accrue debt in order to survive.

Salvos Moneycare is here to help

With these products becoming easier to access at a range of stores, including supermarkets, BNPL can seem like the quickest and easiest solution for people to get what they need, when they need it. Many people prefer going it alone rather than consider reaching out to a charity for help in getting through a rough patch.

Kristen and the team at Moneycare want to assure people they aren’t alone, and in this current climate, there are so many that have never reached out for help before who are struggling to get by.

“Don’t panic,” says Kristen. “You’ve got more options than you know. There’s someone that can be in your corner with you.”

There are a range of options out there to protect people from facing a debt spiral – speaking to a Moneycare financial counsellor is a great place to start.

“The first thing we let someone connecting with us know is we’re a free and confidential service. That brings comfort to people. We partner with people to make their own decisions. This provides agency and self-determination,” says Kristen.

“Quite often, it’s the first time they share their story with anyone, so sharing automatically has an improvement on wellbeing. We see significant improvements in people’s mental health, wellbeing and financial resilience.”

Moneycare financial counsellors can assist clients with payment plans, advocate on their behalf to lenders and utility providers to waive or reduce debts, link clients with other support services, and help with budgeting.

The team can also provide clients with helpful resources so they can understand other options are available to them that they may not have been aware of. This can include:

• No interest loan schemes (NILS)
• Emergency relief provided by a range of charities including the Salvos
• Buying items on lay-by
• Accessing food banks
• Asking for help from trusted family members and friends
• Contacting companies directly and asking for a repayment plan

Taking these early steps to ask for help can prevent long-term anxiety and stress caused by the irresponsible practices of BNPL providers, who profit from the debt and hardship of others.

“By virtue of how it’s marketed and perceived, a lot of people don’t even see BNPL schemes as debt,” says Kristen.

“Our concern is it’s so easy to access credit that is unregulated – there’s no checks or balances. They have their own codes of conduct, and it sits very different to credit card debt in its legalities and regulations.”

More than 100 organisations, including The Salvation Army, have signed an open letter urging the Australian Government to make BNPL products safer in order to protect people from debts they can’t afford.

“The BNPL and wage advance industry is growing rapidly as the cost-of-living surges, with more people using these products to pay for essentials,” the open letter states.

“BNPL and wage advance products are unregulated credit products, using a loophole in our credit laws to bypass basic consumer protections – like assessing someone’s ability to repay or having hardship process.

“The open letter calls on the next parliament to close these gaps.”

*Names and some details changed to protect privacy