Jake Lilley, senior policy adviser at FinCap, told the Herald any credit use for an essential expense was a concern.
“We are worried this could spiral for people where they use it to get that essential expense today with little prospect of paying it back,” Lilley said.
“Two weeks in you’re paying off fuel from two weeks ago and you’re needing to take another loan to pay for fuel today … it’s only going to get worse and worse and get more out of control to the point where you’re really up against it.”
Lilley said this was already the case with groceries.
“There are a number of places where people will use buy now, pay later to purchase groceries and the credit limits keep going up and they find themselves stuck in a cycle of constantly purchasing groceries on buy now, pay later … and that means robbing Peter to pay Paul.”
David Verry, a financial mentor at Auckland Central Budgeting Consultants and North Harbour Budgeting, said getting into a cycle of using buy now, pay later for food or fuel usually means debt will snowball.
“You can find it hellishly difficult to get back to ‘paying as you go’,” he said.
“Buy now, pay later is an alternative to credit cards, but without the interest. Both are dangerous if you don’t meet the payments – interest charged on the credit card if you don’t pay the balance every month and default fees on the buy now, pay later.”
Changes to credit laws earlier this month mean buy now, pay later loans are now subject to the Credit Contracts and Consumer Finance Act (CCCFA).
However, lenders remain exempt from a loan affordability assessment obligation.
Lilley said the lack of an affordability assessment allowed people to keep extending their credit, even if they were struggling to pay for other essentials like food.
“What we’ve heard from [financial] mentors is that people will do anything to keep their buy now, pay later line of credit open.
“People will just go without all sorts of other things in order to keep that line of credit open because they see it as their lifeline and it’s a bit of a trap in that way.”
Lilley said in speaking with financial mentors, buy now, pay later can be a good form of credit for some purchases.
“Generally, where they’ve seen it work well for people it’s where they’ve stuck to one purchase at a time and they’ve known in advance that they can meet the repayment amounts.
“Once you get into multiple loans, that’s where it gets out of control.”
Z Energy said it began accepting Afterpay in August along with a number of participating Caltex sites.
Andy Baird, Z Energy’s general manager – customer, said the retailer was proud to offer customers choice when it comes to payment options.
“[Afterpay] provides an interest-free option when customers pay it in four instalments. Afterpay has strong consumer safeguards built into their product, including requiring customers to undergo credit checks and consent to credit reporting,” Baird said.
Tom Hartmann, personal finance lead at Sorted, said borrowing for everyday expenses was generally a red flag.
“For these consumables that are everyday expenses, it’s easy to see how you can get in trouble because it might help you pay for something in the short term but then you’ll end up keep paying it over time, probably far after you’ve consumed, whether its food or petrol,” he said.
“The other thing I note is that frequently people are using buy now, pay later and using the credit card to pay it, so this short-term debt can become longer-term debt and lead to troubles.”
Hartmann advised using buy now, pay later just for larger purchases and one at a time.
“We’re seeing people get into trouble with juggling multiple buy now, pay later deals at a time.”
Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sports. He reports on topics including retail, small business, the workplace and macroeconomics.
