Buy now, pay later schemes (or BNPL) like Afterpay or Laybuy landed in New Zealand in 2017, and today half a million Kiwis use these services on a more-or-less regular basis.

It’s easy to understand their appeal: BNPL schemes allow you to spread payments over time, with no interest being charged. But like any type of debt, they’re not without risks.

So, here’s a quick top-level guide on the key things to know about this payment option: how it works, and how you can make the most of it.

What does ‘Buy Now Pay Later’ mean?

‘Buy now pay later’ means exactly that: when you buy something using one of the BNPL services available in New Zealand (Afterpay, Laybuy, Zip, Humm, or Genoapay), you can spread the payment over four or six weekly/fortnightly payments. You just pay a portion of the purchase amount upfront, the BNPL scheme covers the rest, and you receive the item right away. What’s more, payments are interest and fee-free (the retailer covers those costs).

BNPL can be an alternative to a credit card. Also, generally payment terms are clear, and the apps are easy to use.

Where’s the catch?

If you meet all your payments on time, there’s no catch. But the reality is that, especially if you ‘over-use’ BNPL, it can be easy to lose track of what you’ve borrowed and miss a payment because you don’t have enough funds in your bank account or credit card.

It’s important to note that, even though BNPL services are marketed as free for shoppers to use, they do charge late fees for missed payments. On paper, these may sound minimal (typically, it’s a flat fee of $10 or $20), but they can go as high as 25% of the amount if you don’t make the payment on the due date.

And if you’re making multiple BNPL purchases at once, penalties can quickly add up. According to Consumer NZ, each year BNPL costs Kiwi shoppers over $10 million in late fees. Also, late payments can negatively affect your credit score, with a broader impact on your ability to borrow money in the future.

Lastly, a word of caution: if you tend to cave in to impulse buying, BNPL is probably not the best option to curb your spending. You could set some rules, like using it just for last-minute emergencies that crop up (e.g., car repairs or dental bills), rather than everything else.

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Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.