Patience in an age of instant gratification

The ‘‘buy now, pay later’’ method of online payment has provided an easy way for consumers to buy goods and services who do not immediately have the funds for a purchase.

In the old days (let’s say 10 years ago), many shops offered a layby system where you made regular payments but didn’t get the goods until you had paid it all off.

Buy now, pay later (BNPL) is today’s version of that – in a world when everything is wanted instantly.

There are many of these products on offer. The more popular are Afterpay, humm (formerly Oxipay), Laybuy, Genoapay and Zip Pay. Some of our big banks are also becoming interested in it.

So what is buy now, pay later, and why is it taking off?

It’s simply an interest-free service that allows consumers to receive an item immediately and pay for it in instalments. You usually must make a minimum payment when you shop online or at a store, then pay off the rest of the purchase. Most schemes allow users to make payments in weekly or fortnightly instalments.

The good thing is it costs you nothing – as long as you pay on time.

Miss a payment and you could incur fees of between $3 and $15 each time, which is added to the amount owing.

Applying for an account is relatively simple. You don’t need to complete a complex application process. In most instances, you provide your personal identification and contact information, link a valid credit card or debit card, get your personal barcode, and off you go.

Once you have opened your account, your app dashboard will show how much you can borrow.

Like all credit, you must read the provider’s schedule of fees and charges, so you know exactly when you will be charged and how much before clicking that button.

You must always remember that you are borrowing money. This is a form of debt and you have to pay it back.

There are some other fundamentals you should consider before opening an account.

Can you afford the purchase and can you afford the instalments? If you can’t, you shouldn’t buy it because you will go into more debt. Even the best deal or amazing sale price isn’t a bargain if you can’t afford it.

Each purchase has ongoing financial commitments until it is paid off, so you must think carefully about how much you need what you’re buying, because it will consume your future cashflow.

If you have bought the item, you should make sure to make the payments on time. Otherwise, you will have to pay penalty payments.

It can be tempting to have more than one purchase in play at any one time, but multiple commitments can soon add up. One purchase at a time is much more manageable if you are on a tight budget.

In our increasingly cashless world, BNPL has added another level of ease of spending money, with its low entry level and transparency.

This is why it’s proving popular with younger people, who tend to have a distrust of credit card interest, hidden fees and revolving debt.

It’s estimated that in New Zealand about 50 per cent of people 35 years of age and under are using it.

But surveys reveal some concerning statistics. A report on New Zealand uptake by the Finder website found that while 38 per cent of all consumers were extremely or somewhat concerned about their current debt level, that jumped to 63 per cent for consumers who had BNPL debt. Some 17 per cent of Kiwis have BNPL debt, with the average balance being $418.

In the United States, a study showed 42 per cent of people aged under 24 and 69 per cent under 40 were more likely to purchase items if a BNPL service was offered. And nearly half of consumers said they spent anywhere from 10 per cent to over 40 per cent more when they used BNPL versus a credit card.

Just 22 per cent of US consumers said they understood the terms and conditions of BNPL.

It’s estimated BNPL services now account for about 2.1 per cent of global online purchases, but that this will double by 2024.

If BNPL is not for you, there are other options for purchasing goods:

❚ The good old-fashioned saving up for the purchase you want. This is the best way if it’s not urgent.

❚ Store cards – this feels slightly oldfashioned but there are still stores offering these, which have to be paid off monthly.

❚ Store finance – you can pay off a large purchase in equal instalments and no interest within a store’s special-finance period, but if you fail

Even the best deal or amazing sale price isn’t a bargain if you can’t afford it.

to make a payment you will have to pay interest.

❚ Credit cards – if you pay your bill every month before the due date (usually 55 days from the date of purchase) you pay no interest. However, most have an annual account fee. It also pays to shop around for those that offer reward systems such as cashback or Airpoints.

❚ Debit cards – these are the next best thing to cash. Using them to pay directly means you’re using your own money upfront, and there’s no risk of late fees, interest charges, or running up debt you can’t afford.

I may be old-fashioned but I still believe you should try to avoid the trap of purchasing consumable goods on credit. There’s something about waiting for what you want and the excitement of using your savings to make that much-wanted purchase.

I don’t have a BNPL product. I spend only what I can afford to buy, and save up for those bigger items.

There’s a time and place for debt and credit, and waiting a little longer for those items you don’t need immediately can be rewarding.