Payment Terms

Should you buy now, pay later?


OPINION: The buy now, pay later online payment method has made it easy for consumers to purchase goods and services that do not immediately have the funds to make a purchase.

In the old days (say 10 years ago), many stores offered a rest system where you made regular payments on the goods but only got the goods when you had paid for them all.

Buy Now, Pay Later (BNPL) is the current version – in a world where everything is wanted instantly.

There are a lot of these products on offer. The most popular are Afterpay, humm (formerly Oxipay), Laybuy, GenoaPay and Zip Pay. Some of our big banks are also interested.

Afterpay, humm (formerly Oxipay), Laybuy, GenoaPay, and Zip Pay are some of the more popular BNPL offerings.

ATTILA CSASZAR / Age

Afterpay, humm (formerly Oxipay), Laybuy, GenoaPay, and Zip Pay are some of the more popular BNPL offerings.

READ MORE:
* Laybuy did not care after UK review reported crackdown on buy now and pay later
* Here’s how to avoid an Afterpay hangover
* Who borrows money? Baby boomers
* Buy now, pay later, industry saw demand increase during lockdown

So what is buy now pay later, and why is it taking off?

It is simply an interest-free service that allows consumers to receive an item immediately and pay for it in installments. You usually have to make a minimum payment when shopping online or at a store, and then pay the rest of the purchase in installments. Most programs allow users to make payments in weekly or bi-monthly installments.

The good thing is, it doesn’t cost you anything – as long as you pay on time. If you miss a payment, you may have to pay a fee of between $ 3 and $ 15 each time, which is added to the amount owed.

Katrina Shanks:

PROVIDED

Katrina Shanks: “You always have to remember that you are borrowing money, it is a form of debt and you have to pay it back.”

Applying for an account is relatively straightforward. You don’t need to complete a complex application process. In most cases, you provide your ID and contact details, link a valid credit or debit card, get your personal barcode and off you go.

Once your account is opened, your app dashboard will show how much you can borrow.

As with any credit, you should read the provider’s fee and charge schedule, so you know exactly when and how much you will be billed before clicking this button. You should always remember that you are borrowing money, it is a form of debt and you have to pay it back.

There are other fundamentals you should consider before opening an account.

Can you afford the purchase and can you afford the installment payments? If you can’t, you shouldn’t buy it because you’ll get into more debt. Even the best deal or the amazing sale price isn’t a great deal if you can’t afford it.

Every purchase has ongoing financial commitments until it is paid off, so you need to think carefully about how much you need for what you are buying as this will consume your future cash flow.

If you purchased the item, you need to make sure you make the payments on time, otherwise you will have to pay penalties.

Can you afford the purchase and can you afford the installment payments?  If you can't, you shouldn't buy it.

Chris Reyem / Unsplash

Can you afford the purchase and can you afford the installment payments? If you can’t, you shouldn’t buy it.

It can be tempting to have more than one in-game purchase at a time, but multiple commitments can quickly add up. One purchase at a time is much more manageable if you are on a tight budget.

In our increasingly cashless world, BNPL has added another level of ease of spending money, with its low entry level and transparency.

This is why it is proving popular with young people, who tend to be wary of credit card interest, hidden fees, and revolving debt.

It is estimated that in New Zealand around 50% of people aged 35 and under use it. But surveys reveal some worrying statistics.

While 38 percent of Kiwi consumers say they are concerned about their level of debt, this jumps to 63 percent for consumers indebted by BNPL.

Pxfuel

While 38 percent of Kiwi consumers say they are concerned about their level of debt, this jumps to 63 percent for consumers indebted by BNPL.

A report on adoption in New Zealand by the Finder website found that while 38 percent of all consumers were extremely or somewhat concerned about their current level of debt, it climbed to 63 percent for consumers. indebted by BNPL.

Some 17 percent of Kiwis have BNPL debt, with the average balance being $ 418.

In the United States, a study found that 42% of people under the age of 24 and 69% of those under 40 were more likely to purchase items if a BNPL service was offered. And nearly half of consumers said they spent between 10% and over 40% more when using BNPL versus a credit card.

Only 22% of US consumers said they understood BNPL’s terms and conditions.

BNPL services are now estimated to account for around 2.1% of online purchases globally, but this figure will double by 2024.

There are other ways to pay for things, such as debit or <a class=credit cards, store cards – or just save money.” style=”width:100%;display:inline-block”/>

Laurent Delhourme / 123RF

There are other ways to pay for things, such as debit or credit cards, store cards – or just save money.

If BNPL is not for you, there are still other options for buying goods. They are:

  • The good old fashioned way by saving for the purchase you want. This is the best way if it is not urgent.
  • Store Cards – it looks a bit old fashioned, but there are still stores that offer them, which need to be paid monthly.
  • Store Finance – You can pay off a large purchase in equal, interest-free installments during a store’s Special Finance period, but if you fail to make a payment, you will have to pay interest.
  • Credit Cards – if you pay your bill every month before the due date (usually 55 days from the date of purchase), you pay no interest. However, most have annual account fees. It is also beneficial to research those that offer reward systems such as cashback or Airpoints.
  • Debit cards – the second best thing to cash out. Using them to pay directly means you’re using your own money upfront, and there’s no risk of late fees, interest charges, or debt you can’t afford.

I might be old fashioned, but I still think you should try to avoid the trap of buying consumer goods on credit. There is something about waiting for something you want and the excitement of using your savings to make that longed-for purchase.

I don’t have a BNPL product. I only spend what I can afford to buy and save on those bigger items.

There is a time and a place for debt and credit, and waiting a little longer for items you don’t need immediately can be rewarding.

– Katrina Shanks is the Managing Director of Financial Advice NZ.


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