Car dealerships have been using buy now, pay later (BNPL) schemes to get higher loan amounts over the line, putting Aussies at risk of ending up in financial stress.
The Consumer Credit Legal Service Western Australia (CCLSWA) discovered a number of cases in which dealerships were splitting the purchase price of a car to put part of it on buy now, pay later while the remainder was funded via a loan.
In one case, 19-year-old Steve* wanted to purchase a second hand car and was told by the dealership that they could provide finance for $19,500, including warranty.
When the loan was rejected by the credit provider, Steve asked to cancel the contract but the lender at the dealership said they had a workaround.
Steve was told $17,000 would be obtained through a credit provider and the remaining $2,500 would be obtained through a BNPL provider.
Steve was told he couldn’t cancel the contract and was forced to pay the lender $75 a week for the car loan and a further $24 a week on BNPL - more than Steve told the dealership he was comfortable paying.
“Clearly, in this instance, the dealership used the buy now, pay later arrangement to secure the sale and advance its own interests,” CCLSWA principal solicitor Roberta Grealish said.
“It is never in a consumer’s best interest to lend irresponsibly. Every day, we speak to consumers who have small incremental debts, which culminate in large-scale debt and financial hardship.
“We are concerned that other consumers, particularly young Australians who are over-represented in this area, will enter into similar buy now, pay later arrangements to their detriment.”
CHOICE CEO Alan Kirkland said cases like this were just another example of the way BNPL was being used to get around credit laws that were designed to protect consumers.
"There's a very good reason that we have laws to restrict the way that credit is provided, especially in places like car yards," Kirkland said.
"We've seen time and time again that high-pressure sales tactics often leave people with debts they can't afford.
“These cowboy credit providers need to be properly regulated."
*Names have been changed.