Buy now pay later: safe ways to use Afterpay without getting stung

How buy now pay later works 

Buy now pay later options like Afterpay are available all over the place in store and online. Here’s how they work: 

• When you buy something, you pay a quarter of the cost upfront, and the buy now pay later company pays the rest. 
• You get what you want straight away. 
• You pay back the buy now pay later company in automatic instalments, usually three payments, one each fortnight. 
• If you pay on time, there’s no interest or fees – the retailer covers those costs. 

For example, you might want to buy a $200 pair of sneakers in a shop that offers Afterpay, so you download the app, enter your details and get approved. You pay $50, take your shoes home, then make three fortnightly repayments of $50 each. 

Wait, though...

Buy now pay later is debt! 

Buy now pay later is a way of borrowing without interest or fees, but if you don’t keep on top of it, it can come back to bite you. Going into debt is always risky, because our circumstances can change and make it difficult to repay.  

With buy now pay later, the aim is always to avoid any late fees, or you’ll end up paying more for the thing you wanted than you intended to. The penalties do add up. 

In the example above, if you miss a repayment because you don’t have enough funds in your bank account when Afterpay goes to deduct each fortnightly $50 for your new sneakers, you’ll be charged an initial late fee of $10 each time, and a further $7 each time if the payment remains unpaid seven days after the due date. 

By law in Aotearoa, buy now pay later providers aren’t allowed to charge fees that go beyond what’s reasonable to cover their costs, so their charges are capped – but any fees at all mean that those $200 sneakers end up costing you a lot more. 

7 ways to spend safer when using buy now pay later

1. Think about the full cost. Buy now pay loans later can be tempting when we think about the first payment, but we actually need to look at all of them in total. What’s the true cost of what you’re buying? Want to make sure the repayments fit into your budget? Our free budget planner will tell you. 
2. Make only one buy now pay later purchase at a time. Try not to take out a second until you’ve paid off the first.  
3. Use by now pay later for larger-ticket items only if you have to. Better yet, save up for them instead. 
4. If you must take out more than one loan, keep a list of them all and set reminders in your phone of when repayments are due.  
5. Make sure you have enough funds in your account when repayments are due, so you don’t get charged late fees. 
6. Don’t miss a payment. Even late payments can mean costly fees and penalties. Paying late can affect your credit rating too. (There’s more on that below.) 
7. Treat it like debt, because it is. Debt can be really hard to climb out of, especially if money’s already tight. Always think twice before taking it on. 

If you’re struggling 

Are your repayments piling up? Please don’t worry alone. Instead: 

• Contact your provider straight away. They may be able to extend your repayment deadlines, waive those late fees or modify your repayment plan. The sooner you get in touch, the more options you’re likely to have. 
• Get free support. MoneyTalks (0800 345 123, text 4029, or email help@moneytalks.co.nz) offers confidential help – no judgment, no charge. 
• Get Sorted. If you’re running several loans at once, our free info shows you how to get out of debt faster. 
• Know your rights. If your debt is sent to a collection agency, you can contact Consumer Protection or your provider’s dispute resolution scheme for assistance. 

Buy now pay later and the law in NZ 

In New Zealand, buy now pay later providers have to follow the Credit Contracts and Consumer Finance Act – the same law that covers credit cards and personal loans. This means companies like Afterpay have to: 

• Check that you can afford the repayments before approving your purchase 
• Clearly disclose the key terms of any credit arrangement 
• Belong to an approved dispute resolution scheme 
• Tell you about free financial mentoring services if you miss a payment 
• Provide hardship assistance if you’re struggling to keep up with payments. 

If you’re not getting this treatment from a buy now pay later provider, they may be in breach of their obligations. 

Buy now pay later FAQs

Do I qualify for buy now pay later? 

You must be 18 years or over to use them and have a debit or credit card. Some services request your driver licence details when you sign up. They’ll also ask for your full name, home address, email address and mobile number. 

Is buy now pay later debt? (And why does it matter?) 

Yes. Even with no interest, you’re borrowing money, and that’s debt. It matters because taking on several buy now pay later loans at once can result in overlapping repayment schedules, which are hard to wrangle and often lead to late fees. 

How does a buy now pay later loan actually work? 

Buy now pay later is a way to spread out the cost of something over four fortnightly payments. You pay the first straight away, then the rest of your payments automatically come out of your linked bank account or credit card in the weeks that follow. If you pay on time, there’s no interest or fees (they’re covered by the retailer). Miss a payment, and late fees apply. 

How many buy now pay later purchases can I have going at a time? 

A typical limit with a buy now pay later company is up to $1500. You can borrow with more than one company, but having too many at once is tricky to manage. It’s much easier and safer to have only one going at a time. 

How much can I borrow with buy now pay later? 

Most maximum limits run from $1000 to $1500, then can edge up higher as you build up more history with the lender. 

How quickly do buy now pay later loans need to be repaid? 

After you buy the item, the remaining repayments are usually scheduled in three additional automatic, fortnightly repayments. 

Can I decide what day repayments are due? 

Some buy now pay later companies let to choose which day your repayments are due, but many don’t, so it’s good to make sure the due dates will work for you. 

Are my repayments taken out automatically? 

Your first payment will be straight away, when you get what you’re buying, and the rest of the repayments will be taken out automatically from your bank account or your credit card. 

Can I use a credit card to pay my buy now pay later instalments? 

You often can, but it’s usually a bad idea. Paying one form of debt with another can mask a cashflow problem and pile up costs, especially if you owe money on the credit card and start paying interest on top of your buy now pay later loan. If you’re reaching for a credit card to cover the repayments, it’s worth getting some professional financial support or maybe some real-life tips. 

What happens if I can’t make a repayment? 

You’ll be charged a late fee, and if you keep missing repayments, you’ll pay more until the late fee cap is reached. This means your purchases become a lot more pricey than you initially thought. Unfortunately, in order to not miss repayments and avoid these late fees, you may even find yourself sacrificing other parts of your life – and no one wants that! 

By law, buy now pay later providers must offer hardship assistance. If you’re struggling, contact yours immediately. They may be able to extend your repayment deadlines, waive those late fees or modify your repayment plan. MoneyTalks (0800 345 123) offers free, confidential support if you need to talk this stuff through. 

Does buy now pay later affect my credit score? 

It can, under the rules in force since September 2024. Paying on time won’t automatically build your credit score, but it won’t hurt it. Missing payments can be flagged and may reduce your score (which lenders look at when you apply for things like a home loan, car loan,or credit card), and if your debt is referred to a collection agency, that will appear on your credit report. Our credit score guide explains how it works.