How much does paying later really cost you?

Afterpay, Laybuy, Oxipay… the list of buy now pay later (BNPL) services goes on.

But financial capability and budgeting experts have a word of warning of people using BNPL later services.

While these services can be used to people’s advantage, people need to be aware of the possibility of extra costs and the potential impact on their credit ratings.

There aren’t exact statistics on how many people are using BNPL services, but the sector knows the popularity of these services is growing.

BudgetFirst Manager Kristal Leach (pictured right), based in Hastings, says they have noticed a trend away from using the door-to-door sales and trucks to using BNPL for online shopping.

“Most of the spending is for consumer items and not big-ticket items, as the benefit to the client is spreading the payment in four to six fortnightly instalments,” she says.

“It is all adding up, but clients do like the flexibility of these schemes and are definitely using them.”

Kristal says there is a risk associated with these services if people default or don’t have the funds available in their account when the payment is due.

This is when it starts to cost people more than they expected with late fees and interest. She says these defaults can also affect their credit rating if they do not make the payments.

While these companies are offering a credit facility, not finance, the Credit Contracts and Consumer Finance Act doesn’t apply. However, some of them do run credit checks on people which show on a credit file as an inquiry.

Centrix bureau General Manager Sales and Marketing Monika Lacey says it’s important to highlight most of these services report payment behaviour – good or bad – which may impact an individual’s credit score.

She says most people do make their repayments on time which will have a positive impact on their credit score, although if there is severe delinquency their score will be negatively impacted, just as it would with any other credit facility.

Kristal says most clients they see have used BNPL services and this is shown in their debt schedule, alongside their payday loans and other consumer finance.

“Our advice is one arrangement at a time, but often our advice is sought when they get into payment difficulty, not before,” she says.

Make it work for you

Personal finance expert Tom Hartmann, of Sorted, says they have seen the popularity of BNPL services grow over the last few years.

“We are quite wary people can still end up getting themselves in trouble if they’re not using the product to their advantage,” he says.

For example, buying a big-ticket item like a flat-screen television may cost $1000. If you miss a repayment you could be charged up to 25 percent of the original price, which makes the whole cost of the product $1250.

Tom says people also tend to buy more when they have credit available to them, especially when they only need to pay some of it upfront – something he says shop assistants are aware of.

“The key is to focus on the full price that you’re paying when you’re buying – even if you’re only paying the small amount first,” says Tom.

While Sorted doesn’t hold data on individuals, they’re aware it’s not unusual for people to have multiple payments with a single provider, as well as accounts with more than one provider.

“When you take out more than one of these, it becomes trickier to steer clear of those late payments,” Tom says. “And that added stress of having multiple payments hanging over you, especially if you are overstretched, may not be worth it.”

Tom says these accounts are classed as open credit facilities which can potentially impact people’s ability to borrow money in the future, such as mortgages or personal loans.

Sorted has guides about how to shop smarter using BNPL options on their website if people think this is a good option for them.

“Be a little bit smarter and make sure it’s working for you,” says Tom.

The Reserve Bank, Statistics New Zealand and New Zealand Institute of Economic Research don’t collect or publish statistics in relation to BNPL services.

If you need budgeting advice and support call our free MoneyTalks helpline on 0800 345 123.