What's the deal with Buy Now, Pay Later?

Buy Now Pay Later (BNPL) services have become increasingly popular in New Zealand, with tempting offers around zero interest and easy approvals. But before you sign up, let's take a closer look at the features, risks, and factors to consider when using BNPL services so you can make a well-informed decision.

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The Buy Now Pay Later (BNPL) Phenomenon

BNPL services allow you to purchase goods or services now and pay for them later, usually in interest-free instalments. Several different businesses offer this in Aotearoa, and these services are now available for a wide range of purchases, from clothing and electronics to healthcare and education expenses. 

Some of the main features of BNPL services include:

• Interest-free financing
• Flexible repayment plans 
• Instant approval process
• No impact on your credit score if you make on-time payments

While this might seem like an attractive option at first glance, it's essential to remember that BNPL services come with their own set of risks and considerations. 

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Possible Risks of BNPL

BNPL isn’t all sunshine and rainbows! There are several risks to consider with BNPL services:

• Overspending: BNPL can make it easy to buy items without feeling the cost right away, leading to spending more than you can afford.
• Late fees: When using BNPL, it's important to keep track of payment deadlines. Missing deadlines can result in extra fees and financial stress.
• Credit score: If you miss payments with BNPL services, providers may report it to credit agencies. This could lower your credit score, making it harder to get loans or credit later on.
• Building up debt: BNPL services can lead to debt if you're not careful with spending and repayments. Using BNPL for many purchases without fully repaying previous debts might create a hard-to-break debt cycle.
• Less protection: BNPL services may not offer the same protection as traditional credit products. If you have problems with a BNPL purchase, you might have limited options for solving the issue.
• Negative spending habits: Regularly using BNPL services can lead to focusing on short-term wants over long-term financial stability, making it harder to manage your finances effectively in the future.

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Alternatives to BNPL Services

If BNPL doesn't feel right for you, there are other ways to manage your money while making purchases. Let's check out some of these options, each with its benefits:

• Saving up for purchases: Sometimes the old-fashioned way is best. By saving up, you can avoid debt and extra costs, giving you more control over your money.
• Using credit cards responsibly: Credit cards can be helpful for some purchases, though it’s crucial to make at least the minimum repayments, if not pay off the entire amount every month, to avoid interest and fees.
• Exploring personal loans: Personal loans can be a good choice for bigger purchases to split the cost up over a longer period. By comparing interest rates, you can find a loan that fits your needs and budget. Remember that personal loans usually have a set repayment plan, which can help you keep up with payments.
• Using layaway programs: Some shops offer layaway programs, letting you reserve an item and make payments over time. Once you've paid off the balance, you can take the item home. This can be a helpful alternative to BNPL services, especially if you prefer to make payments directly to the shop.
• Taking advantage of sales and discounts: Keep an eye out for sales and discounts on items you need or want. By planning your purchases, you can often get a better deal, making your shopping cost less.

Keep in mind, that each of these alternatives has its own set of benefits and risks. It's important to explore your options and find the one that works best for you. By doing so, you can make a smart decision that helps you reach your financial goals and keep your budget in check.

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What to Consider Before Using BNPL Services

Before diving into the world of BNPL, make sure you’ve considered all the alternatives so you can make an informed decision. BNPL can be tempting because it’s often marketed as being quick, easy, and without any costs. But there are always risks! Never be fooled into thinking that money doesn’t come with mahi.

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This was originally posted as an education article on the Money Sweetspot customer portal. If you read this as one of our customers, you would've earned some money off your loan! Do the mahi, get the treats. Find out more.

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