You’ve probably seen a Buy Now Pay Later (BNPL) option by now – could be at a Noel Leeming, or clothing store or even at a gas station! They’ve been taking New Zealand by storm as of late, offering Kiwis an easy way to split up payments over time with no interest. But are these services a viable financial lifesaver, or do they encourage negative spending habits that lead to unmanageable debt? Let’s explore the pros and cons of BNPL and what Kiwis should consider before using these services.
Let’s start with how BNPL works, providers such as Afterpay, and Zip allow consumers to purchase goods and services immediately and pay for them in instalments, usually split across four to six weeks. These differ to credit cards, as BNPL services don’t charge interest, however, they do impose late fees if payments are missed.
What are the benefits of BNPL?
- Interest-Free Payments – Unlike credit cards, Buy Now Pay Later services do not charge interest on purchases, making them an attractive option for those looking to spread out expenses.
- Instant Gratification – BNPL allows consumers to get what they need (or want) immediately without having to wait until payday
- Budgeting Assistance – Spreading out payments can help with managing cash flow, especially for essential purchases like home appliances or medical expenses
The Risks of BNPL
- Encourages Impulse Spending – The ease of BNPL can lead to unnecessary purchases, pushing people to spend beyond their means
- Late Fees Can Add Up – If you miss a payment, late fees apply, making your purchase more expensive than intended
- Multiple BNPL Accounts = Higher Debt Risk – Many Kiwis use multiple BNPL services simultaneously, increasing the likelihood of missing payments and accumulating debt
BNPL and Regulation in New Zealand
From September 2, 2024, BNPL providers in New Zealand must follow new rules under the Credit Contracts and Consumer Finance Act. These changes mean lenders have to treat borrowers fairly, keep default fees reasonable, and offer access to dispute resolution. If someone misses a payment, lenders now have to tell them about financial mentoring services. Plus, company directors and senior managers must meet stricter standards. The goal is to protect consumers while still allowing access to BNPL options. (MBIE, Centrix, Commerce Commission)
Some Tips on using BNPL
If you choose to use BNPL, here are some tips that can help it stay as a helpful financial tool rather than a debt trap:
- Only Use It for Essentials – Avoid using BNPL for non-essential, impulsive purchases.
- Stick to One BNPL Provider – Juggling multiple BNPL accounts can make managing payments overwhelming.
- Track Your Repayments – Ensure you have enough funds in your account to cover scheduled payments to avoid late fees.
- Set a Spending Limit – Treat BNPL like a short-term loan and avoid overextending yourself.
- Read the Fine Print – Be aware of fees, repayment terms, and potential penalties before committing to a BNPL purchase.
Buy Now, Pay Later can be a useful way to handle short-term expenses without the worry of interest—provided you use it wisely. But it’s not always smooth sailing; if you’re not careful, it can lead to financial stress. With BNPL services growing fast, it’s important to keep an eye on your spending so you don’t get caught in a debt trap. Stay mindful, and it can be a handy tool in your financial toolkit!