More people burdened by buy now, pay later debt from Christmas, summer and back-to-school purchases are seeking help from foodbanks and financial advisers.
Christchurch City Missioner Corinne Haines said the mission has seen a shift in the usual seasonal pattern.
She said the typical post-Christmas lull never came this year – with people on their doorstep immediately after the break.
“When people don’t have enough to live on, then debt is often the next step they take to cope. And then usually they can’t service the debt or afford food.”
Haines said she’s particularly concerned about how buy now, pay later services are being used.
“What is really concerning to us is our financial mentors are seeing a significant number of clients who are using buy-now-pay-later services to buy food, groceries and everyday items,” she said.
“Afterpay, which was perhaps more intended for one-off items of a more sort of capital nature, is now being used to pay for everyday expenses.”
“That rarely ends well because when repayments start, they have even less money for groceries than they had before they took on the debt.”
Haines said people are getting stuck in an “insidious cycle” of taking on debt to pay off debt.
“When people go into debt at that level, they are often falling deeper into trouble and there’s no one there to warn them of what the long-term implications are for taking a loan.”
The city missioner said people from all walks of life are getting stuck and there’s been a noticeable increase this year as the cost of living continues to bite.
Afterpay disputes the notion its product is a debt trap.
“Afterpay’s Pay-in-Four was intentionally designed as a simple, interest-free alternative to revolving credit – with short-term, low-value instalments, no compounding debt, capped late fees and immediate account suspension if a payment is missed,” AfterPay said.
It said the vast majority of customers across Australia and New Zealand continue to use Afterpay as intended, with 98% of purchases incurring no late fees.
“We use a combination of internal data, external sources and credit reporting information, including credit scores, to assess affordability at the point of purchase.”
Afterpay says customers experiencing financial hardship can apply for tailored payment arrangements, including extended plans or temporary pauses.
But FinCap senior policy adviser Jake Lilley has also noticed an uptick in people seeking financial advice as they struggle to stay afloat with their buy now, pay later loans.
Like the City Mission, FinCap has seen a change in seasonal patterns.
“Financial mentors have talked about the February rush in the past but in recent years, they’ve been talking about people coming in from January onwards,” Lilley said.
“It’s because there’s a shorter time period for repayments on these sorts of loans, which means everything breaks earlier in the year.”
“People are getting on a tricky treadmill of using a loan to buy the essentials.”
Lilley said as people try to live day to day, an app that can quickly solve problems actually ends up dragging them backwards.
He warned that the worst may still be ahead, with energy and fuel price hikes on the horizon.
The latest Consumer NZ and FinCap report shows financial hardship involving buy now, pay later loans “not only continues, but is rising, and New Zealand has weaker protections compared to other jurisdictions like the UK and Australia”.
Lilley is urging New Zealand to follow Australia and the UK in toughening rules around both affordability checks and debt collection.
“The law needs to change to ensure affordability checks are the same as other loans,” he said.
Lilley also raised concerns about debt collection practices.
“We really need to look into how regulators can keep an eye on debt collection and make sure that’s not just making the problem even worsey.
“Making sure that people actually have an option to take a breath and work out how they’re going to pay all their creditors and not panic – because that just puts you into more debt.”
Rosie Leishman is a Christchurch-based reporter and multimedia journalist at Newstalk ZB.