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The Good, The Bad and The Ugly of Buy Now Pay Later

Buy Now pay later schemes have been a hot topic at the FoxPlan office for the past few weeks and it seems to be a popular product for most Kiwis as well!

These stats have been taken from a 2019 article by NZ herald - Source New Zealand Post

Buy now, pay later (BNPL) providers offer short-term, interest-free loans that people can use to buy anything from groceries to clothes and electronics. Recently it was reported that as a nation Kiwis are racking up over $800 million a year through Buy Now Pay Later schemes – this number was a lot larger than we thought it was going to be. Therefore, we wanted to explore how and why these products are so fashionable - or is it more to do with buying fashion?

When asking different generations what Buy now Pay Later conjured in their minds the younger generations saw this mainly as afterpay, Layby, Klarna and similar product options available to them when shopping online/ on the high street and the older generations talked more about the ‘long term’ BNPL products such as car finance or a mortgage. So, we changed the question and asked everyone if ‘buy now pay later is a good tool for money management?’ and this erupted into a great online and offline debate but something we did all agree on was that there are an endless number of ways to borrow money.

Let us look at some of the statistics from Finders research report on BNPL usage within New Zealand:

  • 31% of Kiwis have used a BNPL service within the past three years

  • BNPL is the most popular with younger Kiwis – 52% of Gen Z and 44% of Millennials have used the service within the past three years, compared to just 10% of Baby Boomers.

  • Around 17% of Kiwis are carrying debt through BNPL services, with the average outstanding balance sitting at $418.

  • Around 38% of the population are extremely or somewhat concerned with their current level of debt, but this figure jumps to 63% for those with BNPL debt.

The biggest concern that our financial advisers had when discussing BNPL was our clients using it incorrectly and incurring late fees; “ in many cases it would probably be cheaper to pay a small nominal amount of interest each month on a credit card rather than to fall behind on the BNPL repayments”. We thought this was an interesting approach to BNPL and its noted that BNPL has been linked to a decline in credit card usage over the past couple of years.

Buy Now Pay later is not a money management tool and due to the nature of the product and the influence it has had on societies’ spending habits we should take it for what it is – a short term interest free loan. If you can manage the repayments and manage your money in a sensible way, there is no reason you can’t use a BNPL scheme to purchase items that will help you in your life.

But.. and it’s a rather large BUT…

If you are already lacking in the skills to manage your money correctly and you are often late in your repayments and find yourself having to ‘ layby’ the essentials it would pay to chat to a financial adviser about making your money work for you and reduce your reliance on BNPL schemes.

Even if all BNPL were to disappear tomorrow, the behavioral changes it has influenced within society need to be addressed as we undoubtedly have higher consumption levels, and a dependency on short-term debt services and a love for instant gratification. Its not all doom and gloom in the buy now pay later space but approach it the same way you would any loan – with caution and pay it back when you must.

Don’t forget to come back for article number 2 where we delve further into Buy Now Pay Later

If this article prompted you to consider your finances, why not speak to an adviser - click the button below to book a time to chat all things finance!

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