How does buy now, pay later affect your budget?

What is buy now, pay later?

Buy now, pay later is credit that lets you take goods or services now and repay the amount in instalments on set dates, usually taken automatically from a card or bank account. The instalments themselves generally carry no interest.

The provider is paid by the retailer rather than by you. New Zealand's regulations define a buy now, pay later contract partly by that arrangement: the provider is paid fees by the third party selling the goods, or pays the seller less than the amount you repay.

Several services of this kind operate in New Zealand, and they differ in the number of instalments, the gap between them, and the fees they charge when a payment fails. The details that matter for a budget are in the terms of the specific service you use.

Is buy now, pay later regulated in New Zealand?

Yes. From 2 September 2024, the Credit Contracts and Consumer Finance (Buy Now, Pay Later) Amendment Regulations 2023 declared buy now, pay later contracts to be consumer credit contracts under the Credit Contracts and Consumer Finance Act 2003.

That declaration brings the general lender obligations with it: the lender responsibility principles, disclosure requirements, and the right to apply for a change to the contract on the grounds of unforeseen hardship. Before that date these contracts sat outside the Act, because they do not charge interest or credit fees.

Since 1 July 2026 the Financial Markets Authority is the regulator responsible for the Credit Contracts and Consumer Finance Act, in place of the Commerce Commission.

Do buy now, pay later providers check whether you can afford it?

Not in the way a bank does for a personal loan. Regulations 18J and 18K exempt buy now, pay later lenders from the requirement to inquire into a borrower's requirements and objectives, and from the affordability assessment in section 9C(3)(a)(ii) of the Act.

The exemption is conditional rather than free. To rely on it, the lender has to obtain comprehensive credit report information about a new borrower, including repayment history, supply that information back to the credit reporter, obtain a fresh report before increasing an existing borrower's total credit limit, and keep a written credit policy explaining how it uses that information.

The practical effect is that approval is based on a credit report rather than on a look at your income and outgoings. Whether the instalments fit alongside your rent, power and food is something only your own numbers show.

What does the instalment structure do to a budget?

Each purchase creates its own repayment schedule, and the payments are taken automatically on their own dates. One purchase is easy to hold in your head. Several purchases made weeks apart produce several overlapping schedules, and their due dates fall where they fall rather than where your pay lands.

Because the payments are automatic, the money leaves the account whether or not there is enough in it that day. When there is not, two things can happen at once: the provider may charge a default fee under its contract, and your bank may charge its own dishonour or unarranged overdraft fee.

This is the mechanism that turns a set of small, individually affordable purchases into a week that does not work. It is a scheduling effect, not a sign of carelessness, and it is the reason seeing all the upcoming payments in one place is useful.

How do late fees work on buy now, pay later?

Late fees are set by the provider's own contract, and the amount and timing vary between services. As a condition of the affordability exemption, the lender has to disclose to you at the time of each purchase both the dates and amounts of the payments required and the details of any default fees, including how and when they would become payable.

One part of the Act does not apply here. Regulations 18M and 18N, in force since 1 November 2024, exempt buy now, pay later contracts from section 41 and section 44A of the Credit Contracts and Consumer Finance Act. Those are the provisions that otherwise prohibit unreasonable credit and default fees and require a default fee to reasonably compensate the lender for actual cost or loss.

So the default fees on these contracts are not tested for reasonableness the way default fees on other consumer credit are. What the fees cost is whatever the provider's disclosed terms say, which makes reading that disclosure the only way to know.

Does buy now, pay later show up on your credit record?

It can. The affordability exemption is conditional on the lender both obtaining credit report information about a new borrower and supplying that information to the credit reporter, including the type of account, the amount of credit extended, when the account was opened, and the repayment history on it.

That means a buy now, pay later account and how it has been repaid can form part of the picture another lender sees later, in the same way as other credit accounts.

What can you do if the instalments have become unaffordable?

Because buy now, pay later contracts are consumer credit contracts, the hardship route in the Credit Contracts and Consumer Finance Act applies to them. An application under section 55 is made in writing, states the reasonable cause, and asks to extend the term or postpone payments. The lender has to acknowledge it within 5 working days and decide within 20, and cannot charge a fee for the application.

Lenders in New Zealand also have to belong to a dispute resolution scheme, and the scheme's details have to be disclosed to you. Using it is free.

MoneyTalks provides free, confidential financial mentoring at https://www.moneytalks.co.nz/, on 0800 345 123, or by free text to 4029. Mentors negotiate with creditors on people's behalf and help with hardship applications, and plenty of people contact them about instalment plans specifically. There is no cost, no income test and no judgement in it.