Australians are seeking out buy now, pay-later (BNPL) loans to cover basics such as food and rent at an alarming rate as their empty bank accounts make it a struggle to survive.
"A lot of people are falling into hardship, they are using credit cards to pay off these loans, they're skipping meals, they are skipping other bills for essential goods or utility bills," Patrick Veyret, senior policy adviser for consumer group Choice, said.
One in five people have used a BNPL service to pay for household items like groceries and rent in the past year, according to the consumer advocacy group's data.
But major industry players argue the move reflects a generational shift away from credit cards.
"For decades consumers have used credit cards at supermarkets and for other everyday spending," an Afterpay spokesperson said.
Angliss Meats at Townsville only introduced the small loan scheme two weeks ago, but at least 50 people have already taken up the offer.
"It's brought a few extra people in," butcher Ryan James said.
"They are just genuinely happy that we have it now.
"They can (pay for) their groceries a bit easier."
There is a minimum spend of $100 in their Burdell shop, but with the soaring cost of meat, Mr James believed BNPL was a big selling point.
"A lot of people don't even tell us they are using it, some of them just tap their card," he said.
Calls to close the loopholes
BNPL services are largely unregulated, with providers having no legal obligation to check borrowers can repay the loans.
"We've heard from financial counsellors who assist people with debt that some people have 10 or 11 loans," Mr Veyret said.
"One person had 11 loans to pay every fortnight and that's because these new lenders don't have to do proper credit checks."
He said borrowers who failed to make payments on time faced hefty penalties.
"Most providers charge people late fees and research we've seen has found that sometimes these late fees actually mean that buy now, pay later is more expensive than a credit card," he said.
There are up to 15 different BNPL providers in Australia, each with their own terms and conditions.
"A number of new players pop up every month," Mr Veyret said.
"There is some view that buy now, pay later is the golden child, when in actual fact they are an unregulated credit service and we're seeing payday lenders try and cash in on this."
Choice has joined global calls to regulate the industry in light of growing costs of living.
Making the rent
The smaller loans have also been extended to include regular payments such as rent.
Real Estate Institute of Queensland (REIQ) chief executive Antonia Mercorella said it was a concerning trend brought about by increasing rental costs.
"We're starting to see people offering above and beyond the rental asking price, so that might result in people offering money that isn't necessarily affordable for them," she said.
Ms Mercorella said while reliance on BNPL loans to cover rent had not been widespread so far, she feared it would get worse.
"These schemes are becoming more and more appealing," she said.
"What's particularly concerning is the way these schemes are being used to pay for essentials."
Reflecting generational change
In a statement an Afterpay spokesperson said the service was becoming available in an increasing number of retail categories including everyday spending.
"Over 1.1 million credit cards have been cancelled by consumers since the COVID pandemic began, as consumers increasingly turn to safer alternatives such as Afterpay," they said.
The organisation said it started customers on very low spending limits and that users were required to make their first repayment up front.
"Afterpay spending limits only go up based on a customer's repayment history," the spokesperson said.
Providing for the ebbs and flows
Last week, financial provider FuPay signed a deal with retail giants IGA, Foodworks and United Petroleum to provide short-term loans up to $500 for essentials like bread and milk.
"We actually have a solid understanding of our customers' financial positions and have all their banking data to work out can they actually afford to borrow this and, in using our service, will that create any harm," FuPay chief revenue officer Betsy Westcott said.
Ms Westcott said borrowing to meet living costs was not new.
"People have been using credit to pay for everyday goods and services for decades through the means of credit cards," she said.
"What's different now is that the younger generations don't use credit cards.
"Access to credit is very important in smoothing out the everyday ebbs and flows of your cash flow and if you don't have a credit card, how do you do it?
"This is where these mini-loans that are made available at the time of a purchase can come in."
She said it could help people save money in the long run.
"You might be making the most of a special or bulk discount," she said.
"If it's a cheap day in fuel prices that's an opportunity to fill up the car instead of just filling it up for $50 because that's all that is left [from] the pay cycle."
