As large creditors tighten their lending criteria, consumers and businesses – especially SMEs and sole traders – are turning to a wider array of lenders that offer high-risk products, including ‘buy now, pay later’ (BNPL) services.

These payment plans enable consumers to buy products and repay the cost in equal instalments over a short term, usually six to eight weeks. When repayments are made on time, consumers incur no fees.

This represents a significant shift in consumer behaviour, with 380 million users globally accessing BNPL platforms. In New Zealand, the popularity of these services is particularly pronounced among younger demographics: the New Zealand Consumer Survey 2024 found that more than a third (37%) of respondents had used a BNPL agreement in the past two years, including 52% of those aged 18-34.

Ian Caplin, business specialist at the New Zealand Ministry of Business, Innovation and Employment, warns that it’s important for people to be aware of the risks behind BNPL products as they can carry extra costs if payments are missed and may impact credit ratings.

“Our guidance to consumers looking to use BNPL is to be aware that it is a form of short-term debt,” he says. “It may be useful in smoothing out spending, but once you have a BNPL account it’s very easy to buy more than you can afford and amass debt without realising it. This is especially true for those who are inclined to buy on impulse.”

Rising level of credit

According to the August Centrix Credit Indicator, while overall consumer credit demand in New Zealand is down 3% compared with last year, BNPL products have increased by 4.8% since 2023.

Managing small amounts of debt through BNPL can require as much administrative effort as dealing with larger debts such as mortgages, especially when trying to arrange repayments across multiple loans, says Jake Lilley, senior policy adviser at FinCap.

“The fourth biggest creditor in our system across 800 financial mentors and over 170 services are buy now, pay later providers,” he says. “While BNPL is seen as a useful product for consumers to make purchases they can’t afford immediately, it can still create significant work when consumers need to negotiate payments or manage the financial burden across multiple providers.”

Risk and regulation

On 2 September 2024, new regulations came into force in New Zealand, applying the Credit Contracts and Consumer Finance Act 2003 (CCCFA) to BNPL products through the Credit Contracts and Consumer Finance (Buy Now, Pay Later) Amendment Regulations 2023.

“The government is taking a balanced approach to BNPL regulations to give consumers greater protections and minimise the risk of lending causing hardship, while retaining all the benefits of BNPL services and the extra choices these provide to consumers,” says Caplin.

“The regulations provide BNPL consumers many of the same protections as other forms of borrowing, such as credit cards and personal loans,” he explains. “However, BNPL providers are able to rely on simplified credit checks to check affordability rather than requiring full affordability checks and will not be subject to certain fee provisions under the CCCFA.”

Lilley says FinCap’s financial mentors are reporting more and more people using BNPL to access essentials like food and petrol. “One of the key concerns financial mentors have is they’re seeing people using BNPL to access essentials,” he says. “We do have concerns because a lot of people don’t view BNPL as debt – it’s becoming a tap-and-go-type finance arrangement.”

How does buy now, pay later work?

Buy now, pay later (BNPL) works by offering customers small loans instantly, designed to be paid back in interest-free instalments. Users sign up to a BNPL service with their debit or credit card, where they are allocated an account limit and a fixed repayment schedule.

What BNPL providers are available in New Zealand?

Providers in New Zealand include Afterpay, Humm, Zip, Laybuy, Openpay, and Klarna. These are part of a global group offering instalment loans at checkout.

Does BNPL affect your credit score in New Zealand?

Yes. While on-time BNPL payments are not reported to credit bureaus, missed payments are reported in New Zealand. This can impact your ability to borrow in the future.