The rising cost of living is hitting Kiwis trying to pay off debt, with those in buy-now-pay-later payments schemes struggling.
Companies like Afterpay, Laybuy, Humm and Zipp have all risen in popularity in recent years.
The buy now, pay later (BNPL) providers offer short-term, interest-free loans which people can use to buy anything from groceries to clothes to electronics.
While borrowers do not pay interest if things go to plan, late fees are added when payments are missed.
And Keith McLaughlin, Managing Director of Centrix, says the number of those getting pinged is on the rise.
“As the economy is tightening and they’re being squeezed, that the arrears are starting to increase, not so much mortgage, that’s reasonably under control but more with the unsecured lending.”
While the amount of consumers behind in repayments is up 12% from last year, the number of those behind on mortgage and vehicle loans is still low.
It’s only BNPL users feeling the squeeze, 8.9% are in arrears – the highest amount in three years, he says.
“We’re at the beginning of what’s going to be a very difficult time as interest rates continue to rise along with the cost of living I think it will have a detrimental impact on their ability to pay back money.”
Because of these concerns, the Government is considering regulating the sector, but Consumer Affairs Minister David Clark, says this would need to be done in a way that doesn’t penalise consumers.
“If we decide to regulate, we do it in a way that makes the right calls for consumers and also protects those who may need protection from the temptations of easy credit,” says Clark.
However, most spenders are aware they need to tighten their belts. Due to high inflation, rising interest rates and economic uncertainty, consumer confidence is at an all-time low.
Half the respondents, of the latest 1News Kantar Public Poll, believed the economy would be in worse shape in a year, while 26% thought it’d be the same and only 24% thought it would get better.
And tight lending laws mean people are borrowing less compared to last year. From May, credit card applications are down 25% while those applying for a mortgage are down 27% overall.
But for now, experts warn against using BNPL, no matter how tempting.
“Because they can set the wrong financial mindset and lead to issues around credit rating and also they do enable overspending,” says enableMe financial advisor, Elizabeth Blake.
Blake says those who are in financial trouble, should seek help.
“Make a plan, it’s always make a plan, see a financial advisor if you want more strategic advice, but just start to pay attention.”
