What is Buy Now Pay Later?

The option to buy an item you need now, without having to pay the full amount until later can come in handy. But how exactly do buy now, pay later methods work? Here's what you need to know.

How it works

Buy now, pay later payment services such as Afterpay, Zip and Klarna allow you to do just that: buy something now and pay for it later.

You usually need to make a minimum payment for the item you buy when you shop online or at a store, then pay the rest of the purchase off through instalments. Many service providers require you to pay your purchase off fortnightly, over three or four instalments.

You're charged no interest for using buy now, pay later, but could be charged late fees if you miss a payment. Some providers charge monthly account fees and payment processing fees so check these before you sign up.

What is it useful for?

Buy now, pay later services give you flexibility to split your purchases into instalments to help manage your expenses. It can be useful for people who have uneven cash flow, such as freelance or contract workers, and those who may need to smooth out their expenses. It can also be helpful if you aren't able to make the whole purchase in one go.

You may find you need an item right away that you don't have time to save for. Say your fridge breaks down and you don't have enough in your rainy day fund for a new one. The fact you will pay no interest for using buy now, pay later can make this a convenient way to pay.

What you need to know about it

1. Think about the cost first

You need to be able to afford the item you're buying not only now, but in the future. It's easy to be optimistic about buy now, pay later purchases, particularly when the price of the instalment seems small compared to the overall cost of the item.

Before you make a purchase, make sure you've accounted for essentials such as your bills and rent or mortgage payments, so you don't spend money that should go to your financial obligations.

2. Make sure you can afford it in the future

Find out when the next payments are due so you can account for this in your budget and allocate money for the next payment. Many providers automatically deduct the payment from your account, so make sure you know which account you made the purchase from.

You might like to set a reminder before the payment due date to make sure you have the money and avoid late payment fees.

3. Stay on track with your spending

While buy now, pay later can make necessary items more affordable by spreading out the payment over time, be careful not to become overcommitted by making too many purchases. You could find yourself juggling a number of payments on the go, each with a different due date that you could forget about or realise you're not able to afford.

If you find it easy to spend impulsively, be careful - as with many cashless payments, buy now, pay later options are often so easy to use that you could pay for something without stopping to think.

4. Understand the impact to your credit score

Be sure not to overstretch yourself financially or get into debt through buy now, pay later. Some payment programmes might report negative activity to credit reporting agencies which could affect your ability to obtain credit in the future.

Need help?

If you're an ASB customer and concerned about your finances, we're here to help. Our team can help you get back on track by helping you to meet your financial commitments in a way that you can afford. If you are concerned at all by your current finances, please call 0800 272 735 and select option three.  We are available between 8.30am and 5.00pm Monday to Friday. Alternatively, you can email hardship@asb.co.nz.