Planning to buy the latest Apple products or warm yourself up with a new winter jacket? Shopping nowadays is easier than ever! If you haven't heard there's a new transaction in town, introducing buy now pay later (BNPL). This payment solution have become popular, and can now be found in almost every retailer and industry there is, both in stores and online. However, you may have doubts as it sounds too good to be true, seemingly giving consumers more power. Whilst there are many concerns that are justified, there are also many that aren’t — let's dive into what exactly BNPL is, and whether you should consider it when shopping.
What is BNPL?
Buy now pay later (BNPL) includes a range of payment solutions where the purchase is made on your behalf by a third party company, meaning you only need to pay a portion (or sometimes nothing at all) upfront, but agree to repay the third party provider by a certain date. Think of it as being similar to finance arrangements when buying a car, but instead covering a much wider range and with more general rules. Many large companies offer BNPL services in collaboration with retailers, such as Afterpay, Zip, and Laybuy to name a few, being widely accepted as a payment method. Different companies will operate differently, but many will offer an interest-free period for repayment to be made in full, otherwise fees may be applied in the form of lump-sum interest, late payment fees, or accrued interest.
The main alternative and rival to BNPL solutions are interest-free credit cards and though BNPL is becoming more popular, the distinction continues to grow smaller. There are many advantages BNPL solutions has over credit card schemes such as being more transparent in usage and penalties. The interest-free period for certain BNPL solutions can also be longer than the interest-free periods on certain credit cards, another advantage in their favour. Additionally, as BNPL are not considered traditional lenders they are not subject to strict rules in lending, thus are much more accessible for many people who have a poor credit history. Although this is common, BNPL companies are still able to perform credit checks and are known to reject risky customers.
What are some common BNPL providers?
New Zealand hosts a range of BNPL solution providers, although most retailers will have their partnered or preferred provider. For example, TradeMe offers BNPL on its platform through Afterpay, which can be found amongst the payment options on listings. Afterpay involves a four instalment repayment plan, each 25% of the total purchase price, with the first payment being made upfront at the time of purchase. The remaining instalments are due every two weeks, and there is zero interest or fees charged assuming repayments are made on time. Many other retailers accept Afterpay, such as Glassons, Mecca, MightyApe, Michael Hill, Briscoes, Rebel Sport and more. Even services such as Lumino Dental accept Afterpay for payment as well, with a list of the immense range of partnered retailers available here.
Popular retailer Noel Leeming offers payment via BNPL provider Zip, which works exactly the same as Afterpay with four interest-free instalments: 25% upfront, and 25% every fortnight for purchases up to $1000. Many other retailers such as The Warehouse and all other companies under The Warehouse Group also accept Zip, as well as Bunnings Warehouse, Chemist Warehouse, Dick Smith, Mad Butcher and Cotton On to name a few. A full list and shopping catalogue is available here.
There are many other providers out there, with many retailers offering multiple different BNPL solutions. Humm for example allows purchases up to $1000 in 5 fortnightly repayments or 10 weekly repayments, or purchases up to $10,000 under a 24-month fortnightly repayment plan. Laybuy is another option used in New Zealand, as is Genoapay which boasts many small businesses and non-retail merchants. Do a thorough check for which BNPL provider supports your favourite retailers or services and research the repayment terms and conditions especially the interest-free periods and the ensuing late fees/charged interest.
What are the ‘strings attached’?
BNPL providers generate profit through merchant fees as well as late interest and fees, meaning that the majority of the ‘attached strings’ are the responsibility of the user. Although it sounds simple to just make a full repayment early and within the interest-free period, it can be difficult in practice for many people, especially those who lack financial discipline and planning. In these cases, BNPL schemes can be harmful in terms of interest fees piling up, especially if the interest rate is high and was deferred, meaning that you will pay interest on the full amount of the purchase, not the remaining balance. Furthermore, many BNPL lenders will have notably higher late interest rates than credit card equivalents. Additionally, if building credit history is important to you, BNPL solutions may not be helpful as they typically will not contribute to improving it, whereas a credit card would. There are also concerns surrounding shopping online, as BNPL solutions offer less buyer protection than traditional credit cards.
Another downside of BNPL solutions is that they usually have lower credit limits compared to credit cards, thus are not useful for making very large purchases, instead being targeted at servicing small to medium sized purchases. Usage of BNPL solutions also carries many of the same risks associated with credit cards, such as the temptation to overspend and the risk of losing track of your personal finances.
Ultimately, BNPL solutions offer a great alternative to credit cards provided you are sensible in your spending, and ensure you make repayments on time and never exceed the interest-free period — just like credit card usage. The benefits are concrete if you use BNPL solutions correctly, but the penalties can be significant if you aren’t on top of it.
How do I sign up and use BNPL?
All BNPL solutions follow the same process, meaning you need to first register a free account online with the provider, requiring an email address and usually a mobile number as well. You will also require a New Zealand debit or credit card to associate with your account, and valid ID to confirm identity such as a driver license. To use BNPL services, you will usually need to download the company’s associated app, which will help you track your spending and payments as well as show you accepted retailers. Once in store when paying, simply show your BNPL provider app’s unique barcode or number to process payment on your account. As BNPL is becoming more common, asking for assistance is often all you need to do as retailers will be able to step you through the process in person. Online shopping is also simple, just follow the relevant payment option instructions when prompted online to purchase through a BNPL solution.
Although spending is necessary for building your desired lifestyle and happiness, protecting your valuables is equally important. Contents insurance can be a great way to cover your significant assets, especially those which you are still repaying. If the thought of another insurance to manage sounds like a chore to you, or if you are already dealing with it, consider using Quashed. Quashed allows you to view and organise all your insurance policies in one simple and easy platform, taking the hassle out of insurance.
If credit card shopping is a regular occurrence in your life, or if you were intending to open one for shopping, consider using BNPL solutions instead. It saves you the hassle of another card to manage and look after, and can be just as easy to use if not more effective as a payment method. Above all, do your own research on the exact conditions of BNPL providers you use, and be diligent in organising your personal finances to make those repayments on time. Happy shopping!