Consumer NZ warned while "buy now pay later" might seem like a great deal, the services came with fishhooks.
The watchdog said steep fees for missed payments and lack of protection under the Fair Trading Act were two reasons people should be careful using the services.
People should be certain at the time of purchase they could pay off all the instalments.
Despite its name, Laybuy was not a layby, Consumer said.
The organisation said the name risked misleading consumers about the service they were getting.
Laybuy is an online payment tool, developed by Laybuy Holdings.
Shoppers get their item upfront and pay for it in 6 weekly instalments.
However, if a payment was missed, shoppers could be stung with default fees of up to $20.
The company's terms and conditions state it may also arrange a debt collection agency to collect amounts owed.
Traditional laybys, where you pay off an item before picking it up, are covered by the Fair Trading Act, giving customers the right to cancel the deal at any time.
That's not the case with Laybuy, Consumer said.
The organisation planned to raise the issue with the Commerce Commission.
Laybuy director Gary Rohloff denied the name of his company was misleading.
"We do not consider consumers could believe we provide a traditional layby service," he told Fairfax.
"We are very clear about what our company offers. We see Laybuy as modernising the traditional layby model.
"The consumer can return the product to the merchant, claim their refund and cancel their payment schedule at any time. We don't even charge a cancellation fee which is something many retailers do under the traditional layby model."
