How to get the most out of buy now, pay later without breaking the bank

Wednesday, 16 February 2022

Buy now, pay later schemes services entered the New Zealand market five years ago.

New Zealanders spend $887 million a year using buy now, pay later services.

But what are these schemes? How do you get the most out of them, and how do you use them without finding yourself in a pile of debt?

I've got you. Here’s my guide to buying now and paying later without getting into trouble.

What are buy now, pay later services?

Buy now, pay later (BNPL) services entered the New Zealand market five years ago.

* Consumer: Shoppers paying $10m in buy-now-pay-later late fees

* What Square's purchase of Afterpay means for the future of credit and payments

RNZ's podcast The Detail talks to Consumer NZ about BNPL products which have traps for those who aren't good at tracking their finances.

Half a million Kiwis use interest-free buy now pay later, and there are five major providers operating in New Zealand.

Australia's AfterPay holds about 40 per cent of the market and New Zealand-based Laybuy has about the same, while Zip, Humm and GenoaPay share the rest.

How do buy now, pay later services work?

Consumers sign up to as many BNPLs as they like and can use them online and in-store where its offered.

An account can be approved instantly, compared to a credit card that can take weeks.

A fraction of the purchase cost is then paid for immediately, then the rest is deducted from the shopper’s account in a series of payments on a selected day every fortnight.

Australia's Afterpay holds about 40 percent of the buy now pay later market.

A survey by Finder of 577 buy now pay later users reveals the average Kiwi user spends $72 a month using buy now pay later platforms.

What are the benefits of buy now, pay later?

Personal finance expert at Finder Kate Browne points out, as long as you pay for the item on time, you don’t attract any extra cost or interest.

“It can be a convenient way to pay for items when you don’t have the cash and is an alternative to a credit card.

“BNPL also tends to focus on smaller amounts of credit so theoretically means you are unable to get into as much trouble as you could with a credit card in terms of overspending.”

The payment terms are generally very clear and are via apps which are easy to use.

Last year I spent $3502.01 using Afterpay and Laybuy. It was used for the odd purchase of clothing, but mainly involved horrifically expensive dentist appointments, new tyres for my car and supplements to get those gains at the gym.

A Consumer NZ survey found that New Zealanders are paying more than $10 million a year in late fees charged by such services as Afterpay, Laybuy, Humm and Zip.

I did not have a late payment once, and often paid off things earlier than the four and six weeks each service offers.

Stuff business reporter Brianna McIlraith spent $3502.01 using Afterpay and Laybuy last year.

What are the risks?

While BNPL can be convenient it still should be considered a form of credit, Browne warned.

“You do need to pay the money back and if you don’t do it on time you can incur late fees.

“While these fees only sound minimal they do add up especially if you are making multiple purchases.”

Running into trouble with BNPL can also negatively affect your credit score which can have long term impacts on your ability to borrow money in the future, she said.

“If you are disciplined with paying back the money you may get more benefit out of using a credit card which can help build your credit profile for the better and can offer additional benefits like rewards points or frequent flyer points.

“Finally, it can be hard to want to pay off something you already own, especially when you may already have your eyes on something new which can create a debt spiral.”

A Consumer NZ survey found that New Zealanders are paying more than $10 million a year in late fees charged by such services as Afterpay, Laybuy, Humm and Zip. The survey also found that more than half the customers said they had felt encouraged to make purchases they otherwise wouldn’t have.

Those aged 35 to 44, single parents and couples with children at home were more likely to be stung with fees.

Unlike every other lender, buy-now, pay-later companies aren’t covered by the Credit Contracts and Consumer Finance Act.

That means when you use these services, you don’t have the same rights as other consumers buying on credit, which includes the cooling-off period to cancel the purchase, no hardship applications if you get into financial trouble, and it has no legal obligation to comply with responsible lending rules.

Consumer NZ has called for buy-now, pay-later services to be regulated under the Credit Contracts and Consumer Finance Act.

(Having lots of Afterpay on your bank statements can also be an issue when applying for a home loan but that’s a topic for a separate story.)

So, how can you make the most out of buy now, pay later services and avoid the risks?

Don't make too many purchases at once: The more you spend on Afterpay, the more repayments you’ll have to pay back at once, which could quickly leave you out of pocket. One trick is to only allow yourself to make a purchase once the existing one is completely paid off.

Plan your repayment days: You have the choice on what day and how often payments will be made. Aiming for pay day or the day after is always your best bet at not falling short and ending up with a late fee.

Know your limit: You’re in control of your bank account and should know how much tax, monthly and weekly repayments come out of each pay. As long as you know your limit for how much you can spend using buy now, pay later services, you’ll be able to safely use them.

Don’t buy stuff for the sake of it: Yeah, it seems great you get those $400 pair of boots straight away, and you’ve only paid $100 upfront. But did you really need them? If in doubt, don't bother buying them, just because you can pay them off over time.

Use it for essentials: BNPL services do come in handy when it comes to the essentials, especially when they take you buy surprise. Some dentists, mechanics, and even travel agents offer BNPL options for those caught out moments.