Buy now pay later providers offer the ability to buy products or services now while paying for it with intertest free instalments over a period of usually four to six weeks. While they don’t charge interest to the buyer, they can have hefty penalty fees if a payment is missed. The providers charge the seller a fee for this payment arrangement.
Some people are calling the buy now pay later a debt trap, and mortgage advisers are seeing many finance applications for borrowers with numerous of these payments from a range of the providers.
It’s always tempting to buy now and be able to take the items home or use the services with multiple or big purchases, but when the repayments start to hit you may curse the choices that you made. For some it may be a struggle to make ends meet.
As reported by MBIE New Zealand now has seven buy now pay later operators – Afterpay, Humm, Zip, Laybuy, Genoapay (Latitude), Openpay and, most recently, Klarna – with the average amount per transaction $210.
Benefits Of Buy Now Pay Later
There are some benefits of the buy now pay later concept, when used for the right reasons, when the purchase is a considered one and when the payments can be managed properly.
Buy now pay later can be an effective and low-cost way to spread the cost of purchases without paying interest.
For businesses being able to offer buy now pay later to customers can help generate additional sales.
Avoid The “Trap”
Like the overuse of credit cards there are many Kiwi’s that will get themselves into trouble as they have never learned to control their spending, or may buy now and have issues before the full payment has been made.
Unfortunately this is a very easy way to get credit, and because of that it’s often the people that really cannot afford the debt that end up with too much of it.
First Home Buyers Beware!
If you are considering buying your first home then you should try avoiding offers where you can buy now pay later. Plus avoid any debt where possible.
When a lender reviews your mortgage application they will be looking at all financial commitments and also your account conduct. This has become more important over recent months as the banks and lenders are implementing the new CCCFA rules.
The best advice is to avoid taking on any debt if you are looking at applying for a home loan any time soon. The lenders will be reviewing 3-months bank statements and you want those to look as good as possible.