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Is Buy Now, Pay Later looking tempting this Christmas? It pays to be careful.
While Buy Now, Pay Later (BNPL) may look like a handy way to spread payments, it’s not without risks. Did you know there are late fees if you miss a repayment? That pay later quickly turns into pain later.
We’ve all been there – you see a great sale on Black Friday but don’t quite have enough money saved up so you put it on credit. (And yes BNPL is credit/debt). And then December rolls around and it’s time to buy presents for your whānau and friends. Why not take out another BNPL for that? Well, that’s where things can start to go wrong. It can be easy to lose track of what you’ve borrowed, and before you know it, you’re not keeping up with the repayments and those late fees start adding up.
The last couple of years have been tough, and we’re all in need of a great Christmas with our whānau. But the last thing we want is to go into the new year with new debt. If Buy Now, Pay Later is looking tempting because Christmas doesn’t seem possible without it, these 12 hacks will help.READ THE HACKS
Buy Now, Pay Later is a type of debt. It’s a way of borrowing without interest or fees (the retailer covers these costs), as long as you use them right. When you buy something, you pay a small part and the BNPL company pays the retailer the rest. You receive your purchase straight away. Then you pay the company back in instalments. Most maximum limits on BNPL run from $1000 to $1500. But Humm's "Big Things" loans are a bit different and can go as high as $10,000, with the repayments spread out over as long as 24 months.
Going into debt is always a bit risky, since circumstances might change and it could become difficult to repay. Sometimes it’s hard to tell what might happen.
The aim is to avoid all late fees, otherwise we end up paying more for something than we intended to. These penalties can end up as high as 25% of the original price – so that $1000 flat screen could end up costing $1250 if not repaid on time. The other catch with BNPL is that we can get “upsold” on buying more than we planned to.
BNPL can be a great way to spread the expense of a purchase and not get charged any interest but you need to use it sparingly and know the risks. As soon as you’re late with a repayment you’ll be stung with late fees. And if you keep failing to make payments then it could negatively affect your credit rating and ability to borrow money later on.
A typical limit with a BNPL company is up to $1500, and you can borrow with more than one BNPL company. But having too many of these going at one time is tricky to manage – it’s much easier and safer to have only one going at a time. If you must take out more than one of these, list them all and set a reminder in your phone when repayments are due.
Yes. When you buy something using BNPL like Afterpay, Laybuy or Humm, you pay a small part straight away and the BNPL company pays the rest. You receive the item straight away. Then you pay the company back in instalments – typically three fortnightly repayments. This type of loan, if you make the repayments on time, is interest-free. But costs can add up if you miss a payment.
You’ll be charged a late fee, which is typically a flat fee of $10 or $20. But if you keep missing payments, the penalties can go as high as 25% of the original price you paid.
You are not alone. Support is available to help you go from just surviving to thriving. Hundreds of mentors are just a phone call away at MoneyTalks, there are also good loans available, with no fees or charges, which provide fair and affordable options from the likes of Good Shepherd, Ngā Tāngata, and they will also put you in touch with people to talk to that can provide the tools to stay away from future bad debt. Christians Against Poverty also offer help to get on top of your debt, as well as courses on life skills and managing money, and coaching for getting into work.
Most maximum limits on these BNPL run from $1000 to $1500. But Humm's "Big Things" loans are a bit different and can go as high as $10,000, with the repayments spread out over as long as 24 months.
Repayments are typically scheduled in four or six payments each week or fortnight, depending on which company you’re using.
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.
Some BNPL companies allow you to choose which day your repayments are due, but many don’t, so it’s good to make sure it will work for you.
Missing repayments will affect your credit rating. You’ll want to avoid this so you’ll have a good credit score and can borrow more in the future. If you find yourself unable to repay entirely, your debt will be referred to a collection agency.
You must be 18 years or over to use them and have a debit or credit card. Some services request your driver’s licence details when you sign up. They will also ask for your full name, home address, email address and mobile number.
Yes. BNPL is a way to spread out the cost of something over four or six weekly or fortnightly payments, depending on which one you’re using. You pay the first up front, then the rest of your payments automatically come out of your linked bank account or credit card in the weeks that follow.
Both. BNPL can be used in a store when you’re making a purchase. You can even download the app at the till and sign up on the spot.
Unlike credit cards, or other credit products covered by the Credit Contracts and Consumer Finance Act (CCCFA), BNPL contracts do not charge interest or fees (other than missed payment fees) or take a security interest over goods. Therefore, BNPL is not required to comply with the rules under the CCCFA. They are subject to the Fair Trading Act 1986, and some BNPL providers offer other products which are CCCFA regulated.
Generally, a full credit check won’t be done when you sign up or make a purchase. BNPL providers don’t fall under the same lending criteria as credit card and personal loan providers.
However, while they might not do full credit checks, their T&Cs give them the authority to do one should they wish to and by agreeing to their terms you give them permission to pass any information about any late or missed payments, defaults or penalty payments to credit reporting agencies. This could lead to a black mark on your credit score.
BNPL companies usually make most of their money by charging fees to the businesses that offer their plans. This might be by retailers paying a merchant fee between 2-8% of the purchase amount, and some also charge a flat fee per transaction.
Interest-free store cards, like BNPL, also offer a way to get what you want without having to wait, without paying interest. But store cards are credit cards, so they come with added costs like setup fees and annual fees (BNPL does not). They’re also subject to CCCFA rules. If you don’t pay off the item in full during the interest-free period, interest rates with store cards can be as high as 25%! Similarly, if you don’t keep up with your BNPL payments, you’ll be charged fees.
Not much, actually. When you sign up for BNPL, the company is giving you credit – that is, the ability to borrow a certain amount and pay it back in instalments. If you look at your Afterpay or Laybuy app, for example, you can see what your credit limit is, and how much you can borrow. It’s typically around $1,000, but your limit will increase over time as you use the service.
So think of BNPL as credit (an amount you can borrow) and debt, just like any other loan you’re paying back. Note: It’s important to know that your credit limit with BNPL gets taken into account when you apply for other loans, and having too many open can limit your ability to borrow further.