Buy Now, Pay Later Schemes Can Be Deceptive

Topic: Technology

A study found that four in ten young people don't see 'buy now, pay later' as debt. Researchers investigated how these schemes affect consumers and their perceptions of them.

The way a product is labeled can change how consumers think about it. This is also true for buy now, pay later schemes. These schemes are marketed as convenient ways to pay for purchases over time, but they are fundamentally still a form of debt.

Products such as Afterpay, Klarna and Zip offer consumers access to items they may not be able to immediately afford. Speedy approval and an easy checkout add to the appeal but can also encourage overspending, while missed payments can bring late fees and mounting debt.

Our new research set out to investigate how people use buy now, pay later schemes. We surveyed young New Zealand adults and found that four in ten respondents didn't see it as debt, while nearly half thought it carried fewer consequences than other forms of borrowing.

Why It Matters

This study is important for Indian students because they may be tempted to use these schemes without fully understanding the risks involved. It's essential to understand how buy now, pay later schemes work and their potential consequences.

Key Facts

• Four in ten young people don't see 'buy now, pay later' as debt
• Buy now, pay later emerged in the early 2010s and quickly became commonplace in New Zealand
• Providers charge vendors a small percentage (2% to 8%) on each sale but also earn substantial revenue from late fees charged to consumers
• The law treated buy now, pay later differently until September 2024 when it was brought under the Credit Contracts and Consumer Finance Act
• A recent review by Consumer NZ and FinCap concluded that reforms have not reduced financial harm among users

Key Terms

Debt

Money borrowed with the expectation of paying it back, usually with interest

Credit

Borrowing money from a lender or credit provider

Implications

This study is important for Indian students because they may be tempted to use these schemes without fully understanding the risks involved. It's essential to understand how buy now, pay later schemes work and their potential consequences.