More than a thousand Australian retailers are letting shoppers enjoy their purchases now, and pay for them later through Afterpay. The service splits up payments over a period of up to eight weeks, giving an interest-free, budget-friendly choice for online and in-store shopping that’s hard to resist over the Christmas spending season. But is it too good to be true? The Australian Securities and Investments Commission (ASIC) says yes, and it’s calling for a Senate inquiry into the service.

ASIC is concerned that because Afterpay isn’t regulated by the National Credit Act, it doesn’t need to consider the income and existing debts of its members. Members simply need to declare they’re at least 18 years old to rack up as large an Afterpay bill as they like. This means Afterpay can potentially offer loans to its members when they are unlikely to be able to repay them.

While Afterpay doesn’t charge the exorbitant interest rates of pay day lenders, it does impose late fees of $10 for outstanding payments and an additional $7 if payment is not made within seven days.

To Afterpay’s credit, it does not allow its members to make additional Afterpay purchases if their payments are outstanding. Its late fees are capped at $68. It also has a website page about responsible spending with links to more information about ASIC TrackMySPEND, Choice budgeting software, and the National Debt Helpline. However, these steps may not be enough to deter cash-strapped Australians determined to have the best Christmas at any cost.

“The stark reality is that these schemes profit when Australians are unable to pay on time and are forced to pay late fees,” declared Choice. “It is imperative to have legal safeguards in place to prevent these schemes from preying on those who can’t repay on time and unfairly profiting from this perverse incentive.”

Afterpay denies Choice’s claims and insists its late fees do not cover its losses on dishonoured payments, declaring it would have been $9.3 million richer last year if all Australians paid on time.

Afterpay can be a great tool for easing the financial pressure of Christmas, but only if you use it responsibly. Keep track of your spending and ensure your cumulative payments won’t leave you with a festive financial hangover. Or better yet, save a Christmas nest egg so you have the money you need to treat yourself and your loved ones over the silly season. It might be too late to generate any serious savings for this Christmas, but you can always prepare for next year. Call Chase Edwards on 1300 854 833 to start talking about strategies that can help you gain the financial freedom you need to avoid services like Afterpay.