Why we don’t like buy now pay later

Apple announced that they are getting into the “buy now pay later” (BNPL) market. For those of you who don’t know what this is, BNPL is a way for you to spread payments on purchases over a number of months. And we’re not talking about big purchases lie a car or household furniture. It can be for a t-shirt or a pair of jeans. The loans are usually interest free with the lender getting fees off the retailer but there are charges for late payments. Research has shown that people using BNPL buy more, so they are increasing their debt levels.

There are lots of reasons we don’t like buy now pay later. It goes against the cornerstones of building financial wealth

No goal setting

It is good not to be able to afford things. If you really want it, you will save for it. That means setting goal. What you need to do to reach your goal and when you aim to achieve it by. You get the satisfaction of achieving your goal and how it made you feel. You remember that feeling for the next time you need to set a goal and you know what you have to do. You also learn what it is like to go without while you are saving for something that is more important to you.

Learning how to save, setting goals and achieving them are key aspects in being able to build wealth over the long term.

Building up debt

Debt has its place in personal finance. It should be used to fund large purchases. The cost of a property is so much that it will take you decades to save the money to buy it without borrowing. So it makes sense to borrow the money.

Using BNPL is fine if you are earning a decent salary. But people on good money aren’t using BNPL, they just buy the item. The people who use BNPL the most are young people and those on low earnings (most young people are on low salaries as they are at the start of their working life). And they are spending more using BNPL than when they previously just bought the item. As they are spending more, the number of debt repayments are increasing and so do their debt obligations. If they miss payments, it will impact on their credit rating, which will impact on their ability to borrow in the future. All for the sake of getting a top or a pair of boots.

The opposite of frugality

BNPL encourages a consumer driven lifestyle. On Instagram or the celeb focused websites such as the Daily Mail, you can buy the latest fashion items with just one click. Being able to buy all these items with just a couple of clicks and only having to pay 25% up front only leads to consumerism…which is what they want. Try keeping track of all the items you owe money for and when all these repayments are coming out.

You have also increased the cost of living beyond what you are actually earning. We advise all clients to be frugal, that is live within your means and save the rest. This is the opposite of that, live beyond your means and borrow the rest. This is not a sustainable way to live and it will catch up with you.

People, especially young people, are going to find BNPL a great way to fund their lifestyles, but it has a real danger of getting them into debt that they cannot manage. It is also an unregulated industry so the Central Bank has no oversight on the companies involved in lending the money.


Steven Barrett

20 June 2022