Savvy tips from a buy now pay later spender

Using buy now pay later (BNPL) loans like Afterpay or Zip to smooth out payments might sound like a good idea, but there are risks. Will you be able to keep up with payments if you’re juggling a few?

One of our tips is to use it for big purchases and not stack up too many. See our BNPL guide for more on how to shop smarter using it.

How buy now pay later gets used

Three-quarters of BNPL borrowers use BNPL as a credit card alternative, according to a survey by the Ministry of Business, Innovation and Employment (MBIE). Most use it for clothes (87%) and tech (53%). Health and beauty is also popular (44%).

The data shows that the success of the BNPL industry has come from its ability to take advantage of consumer psychology – giving you instant access to goods and services at a perceived lower price. It focuses us on the initial instalment amount rather than the full cost.

One in five surveyed said they use credit cards to pay off their BNPL, so this debt may end up on cards anyway. That’s a worry.

I jumped on a call with a young professionals network to sound them out on what they thought about BNPL and how they use it. A handful preferred to save to pay for things, some had trust issues with the system, but a fair number still enjoyed the benefits of getting things straight away using BNPL.

“I have used it,” said one, but “I often find that once I receive my purchase, I regret buying it, because it’s not as exciting as I thought, and then I have to keep paying for it for a long time after I’ve received it.”

“I don’t use it, but I invest in it, since everyone’s using it,” said another. “I would 100% get in trouble if I use it.”

Freya’s buy now pay later story

Among these young professionals was Freya, 23, an adviser at a large government agency. She’s a savvy user, having got on board with BNPL early on.

“I was working at Farmers one summer, getting paid fortnightly,” she says, recalling that she wanted to avoid getting into trouble with a credit card as she had seen others do. “Getting a credit card at 19 is quite a scary thing. I like to be aware and know what I’m doing. You do have the horror stories about credit cards. It can be quite daunting.”

The fortnightly BNPL repayments worked well with her own pay schedule, and it came in handy when she moved into a new flat and used it to get a new bed, and even that new coffee machine she wanted.

After a while, Freya found using BNPL is a bit addictive, with all the perks and rewards on offer. These days, for example, with Afterpay she doesn’t even need to pay the first instalment straight away and can defer her repayments.

At one point, she contacted Afterpay to reduce her credit limit by half. She had drifted up to $3000, and despite earning well, that was more credit than she thought was safe for her. “Borrowing $3000 is actually $750 a fortnight in repayments,” she explains, “which is a lot of money.”

Freya has used BNPL with Ticketmaster – she was able to use it to get festival tickets for her and her friends. “With the payments being split up for myself, I could manage that, and they could pay me back.”

Like all debt, people need to make sure it works for them (and that they’re not working for it!). Freya acknowledges that people can wind up in hardship if it’s not managed properly.

“Some people are really good at it, but I know not everyone has the same income. What is their threshold, their matrix for working this out? Some people don’t understand the obligations and can get themselves into trouble.”

She has found that using BNPL and the app can be helpful for seeing records of your purchases and if you need to get a refund, which has been easy and straightforward for her.

But all the ads and sales get you thinking only about the initial payment and not the total cost. “It’s definitely marketed like that, towards instant gratification.”

Freya’s rules for not going off the rails with buy now pay later

• Keep your credit limit in your comfort zone. “I don’t want my credit limit high, very rarely over $1000. That’s $250 you could be paying, which is a lot of money.”
• Pay everything due on payday. “On payday, I go in and pay everything that’s due before my next pay.”
• Avoid putting off payments, even if you can do it without a penalty. “I don’t use the deferred payment option. Only if something really bad happened. I do use pay nothing up front [a reward].”
• Take time off from using BNPL. “At the moment, I don’t want to owe anything or have any back payments.” BNPL can let you get something instantly and spread the payments, but as Freya’s seen “it could spread out of control.”