Students getting caught out by buy now pay later schemes

Many students are using risky buy now, pay later (BNPL) schemes for online purchases, with few protections in place if things go wrong.

By using BNPL offers, consumers can get goods or services immediately but pay for them later in interest-free instalments.

Frequent use of BNPL services can push students into financial trouble with repayments added to their weekly living expenses.

FinCap senior policy advisor Jake Lilley says BNPL schemes can be useful but can also lead to financial strain.

“Although we do see [BNPL] can be useful to people at times, financial mentors have been quite concerned with how people are finding themselves in out-of-control finances multiplied or contributed to by BNPL services,” he says.

“We’ve been saying for some time it is credit, like other creditors. It is a loan like any other loan, so all the same laws should apply.”

Listen: FinCap’s Jake Lilley discusses their concerns with BNPL being accessed by young people

BNPL loans are easily accessible, especially for students, who will often turn to them to cover the cost of essentials.

A 2023 study conducted by Auckland University of Technology (AUT) titled Problem debt, BNPL & Young Adults in Aotearoa, says “more than 70 per cent of their sample [of students] had tried delayed-payment options, with 20 per cent using it poorly".

“Young adults tend to have low or unstable incomes, putting them at a higher risk of over-indebtedness.”

A Consumer NZ spokesperson says: “Younger demographics tend to see BNPL as favourable to credit cards – until recently, BNPL providers weren’t required to carry out credit checks.”

In September 2024, new rules and regulations were implemented with BNPL vendors making credit checks compulsory.

FinCap says the evidence shows it would be best to have probability assessments in place with BNPL, as they are with credit cards and home loans.

A probability assessment is requires lenders to make specific inquiries to assess the borrower’s income and expenses to ensure that repayments are not likely to cause considerable hardship to the borrower.

Consumer NZ says it is currently advocating for this to happen.