The issue with buy now, pay later schemes, according to a loan expert

While buy now, pay later schemes can be handy tools when you can't quite afford a big-ticket item, one loan expert is worried that people who use them on a day-to-day basis aren't seeing it as debt.

It comes as an Auckland liquor store retracts its offer to allow customers to use a buy now, pay later service to purchase alcohol. The Bottle-O Panmure quickly walked back on the announcement after a slew of online contempt.

Buy now, pay later services are offered by many merchants, and it allows people to pay off what they're buying in several instalments often spaced a fortnight apart.

"It could be argued it's irresponsible for a liquor store to be offering this type of payment mechanism," Jon Duffy, Consumer NZ chief executive, told The Project.

It renewed the discussion about whether buy now, pay later services are good, bad, or simply need some oversight. 

While a recent survey found that 20 percent of buy now, pay later users reached for their credit cards to pay off instalments, Duffy said many find these schemes manageable and even helpful.

"If you're in a position to be able to manage the funds properly, they are actually a really good alternative because you don't pay any interest."

Last year the Government asked for and got submissions on how to regulate buy now, pay later services. A decision on that is still to come.

But some in the sector are asking for a code of conduct to be set up.

"It's a self-regulatory code of conduct put together by the industry, offered to the minister and his officials as providing the oversight for the sector," said Gary Rohloff, managing director of Laybuy.

"And it just provides a whole lot more flexibility."

Natalie Vincent.
Natalie Vincent. Photo credit: The Project

But Natalie Vincent, CEO of Ngā Tāngata Microfinance, which offers interest-free loans to families on limited incomes who need help with debt, doesn't believe the industry can regulate itself.

"They're calling for a code of conduct, but who would actually be monitoring that? Would they be setting up a compliance committee, who knows," she told The Project on Tuesday.

"But essentially, it's then industry monitoring industry, and I just don't think when you're dealing with something as serious as this … that they can actually monitor themselves."

Vincent estimates that one in four people who go to her business for a loan are part of a buy now, pay later scheme, and more and more people are using the system to buy essential living items.

"The issue with buy now, pay later is that people are not seeing it as debt, they're not seeing it as credit, and it is credit," she said.

"You go into any shop and you head out with an item that has monetary value, you're indebted to the service to pay that item. So it is credit and it is debt, and if you're not able to pay that back, that does incur fees, and worst case it ends up at a collection agent, which incurs more fees."

Buy now, pay later schemes are becoming a growing problem for the people she helps.

"The reason we see it as a growing problem is because the people we work with are already highly indebted, so they're in a situation of trying to manage problem debt, and often they have the added buy now pay later services on top of that existing debt, so it just begins to spiral out of control."

Watch Vincent's full interview on The Project above.