Cost of living: Kiwis turning to buy now pay later services to afford essentials

As the cost of living crisis continues to hit Kiwis hard, an expert says more and more struggling New Zealanders are turning to buy now pay later services to afford the essentials. 

It comes as food prices were 12.5 percent higher in April this year compared to 2022. The surging costs reflected higher prices for fruit and vegetables, eggs and potato chips, Stats NZ said.

This increase was the largest since September 1987, which included the introduction of GST in 1986.

Fruit and vegetable prices surged 22.5 percent year-on-year and grocery prices were up 14 percent.

Not many shops around the country now don't offer buy now pay later (BNPL) services and with the ease of accessibility often comes temptation. 

But this doesn't come without risk, with an expert saying struggling families could get caught in a poverty trap by racking up hundreds of dollars of debt by using these schemes.

BNPL companies typically offer on-the-spot interest-free short-term loans with minimal credit checks that spread payments over weeks or months and are largely used by cash-strapped people taking debt, sometimes more than they can afford.

Just over 25 percent of New Zealanders had a BNPL account, a figure that had remained consistent over the last 18 months, according to Consumer NZ. 

Twenty percent of BNPL users had also accumulated debt from essentials such as groceries, bills and fuel, while 35 percent paid for services with a credit card, according to the stats from Consumer NZ. 

BusinessDesk investment editor Frances Cook told AM on Tuesday BNPL services are often used by people who are quite financially vulnerable. 

"People who are struggling to feed their families and using it to buy groceries, which is a real sad sign of the times, to be honest," she said.

She said these Kiwis can fall into the trap of being sold that it's being "smart" with their money without these schemes mentioning the late fees. 

"The buy now pay later schemes are not often sold or marketed as debt. It's sold as you being smart with your money, there's no interest, it's all fine and you can spread out your payments," Cook told AM.

"They don't talk much about the huge fees if you do miss a payment, so I think it is really hitting those people who can least afford to pay, [they] end up having the worst impacts."

Francis Cook urges Kiwis to get advice before using buy now pay later schemes.
Francis Cook urges Kiwis to get advice before using buy now pay later schemes. Photo credit: AM

She urges Kiwis to get advice before using these schemes. Cook recommends MoneyTalks, which is where people can get free financial advice. 

"One of the good things about that is it's not just budgeting advice or putting you in touch with food banks or whatever else you might need," she said. 

"They can also sometimes go and advocate on your behalf with these companies to try and get some of those fees waived. So that can be a really good idea. The Salvation Army also has a budgeting service."

She said New Zealand is in an "odd situation" where we have "very little" regulation on BNPL services. 

"If you apply for a credit card or a bank loan or anything like that, they have to check that you can actually afford to pay it back, that's responsible lending and making sure that you can't fall into a debt trap," she said. 

"Because these BNPL products don't charge interest, that's the loophole, so they're not considered credit, but it is credit and they do still charge late fees." 

Late fees are something BNPL services don't talk about a lot but can be "huge", Cooks said. 

Kiwis will be charged a late fee, which is typically a flat fee of $10 or $20, but these can go as high as 25 percent of the amount you're borrowing, according to Sorted

So if you have a purchase of $1000 and are unable to repay, it could cost as much as $250 in penalties.

Cook would like to see New Zealand follow in Australia's footsteps by increasing regulations on these schemes. 

Australia just introduced a new law forcing BNPL providers to carry out background checks before lending in what would be one of the world's toughest regimes for the startup sector. 

The cost of living crisis is also hitting New Zealand's city missions and food banks, with one saying there's been a tripling of demand in recent years. 

Wellington City Missioner Murray Edridge told Newshub there's been a marked increase recently and they've seen a tripling in demand compared to three years ago when the COVID-19 pandemic first hit.

It's not just the Wellington City Mission that is seeing a spike in demand, Dave Letele who runs Brown Buttabean food bank in Manukau, Auckland, said there's been a "big increase" in people contacting them to pick up a food parcel.

He told Newshub they can "never" keep up with demand and there's been a big spike lately not only from individuals but social services too.

And at the Christchurch City Mission, a combination of a shortage of food and rising demand means they are having to limit food parcels to one every five weeks. 

Watch the full interview with Francis Cook in the video above.