Some people are reportedly putting BNPL payments ahead of everything else. File photo. Photo: 123RF
Financial mentors are concerned that buy now pay later loans are snowballing into major debt problems for some borrowers.
While Centrix data shows buy now pay later (BNPL) arrears have dropped, mentors say people who are in a cycle of BNPL debt are prioritising its payments over their other obligations.
"Financial mentors are getting really stretched by unaffordable buy now pay later loans," said Fincap senior policy adviser Jake Lilley.
"They've told me that some whānau are presenting for food support after one initially affordable purchase through a buy now pay later loan snowballed into multiple loans. The apps seem to encourage people to spend more and more through buy now pay later loans. Some end up overcommitted on repayments and feeling dependent on the line of credit to access the essentials."
He said while providers would not lend more to people who were behind or had requested help under hardship provsiions, some people were putting BNPL payments ahead of everything else.
"Some whānau will go without other essentials to keep the credit line open as they can't see another way to keep on top of grocery costs. We really encourage people to take up buy now pay later lender's referrals to financial mentors on their hardship assistance web pages."
BNPlL debt had an arrears rate of 6.9 percent in August, according to Centrix, compared to 8.9 percent for personal loans, 4.7 percent for power bills and 9.6 percent for telco bills.
The government has agreed to make regulations under the Credit Contracts and Consumer Finance Act exempting buy now pay later lenders from having to comply with provisions relating to unreasonable fees, which Lilley said was a concern.
Commerce and Consumer Affairs Minister Andrew Bayly said he had been told by providers that it could put their businesses in jeopardy.
"The CCCFA's default fee provisions limit default fees to reasonable amounts directly related to the costs incurred by the provider due to the default. These provisions were designed for traditional credit products that can recover other costs through interest charges."
Lilley said the way fees were structured could mean that somoene could end up owing more in principal and fees that they would in a standard loan that was not exempt from the requirements.
Afterpay said 98 percent of purchases did not incur late fees and 95 percent of instalments were paid on time.
Retail consultant Chris Wilkinson said BNPL had been the final nail in traditional layby arrangements for many retailers.
"Layby has always been a traditional way for consumers to balance wants with budgets and has been a way for generations to learn thrift
and good money management. There have been many businesses that have excelled through mastering layby including apparel retailers and toy retailers leading up to Christmas.
"Layby is complex to manage and there's always a risk that people don't complete which left retailers with stock that was sometimes out of season…Some retailers still offer layby, but it's not a discipline later generations have as much any longer, sadly."
The Warehouse said it continued to offer layby but people were shifting to other payment options.
