Buy Now Pay Later (BNPL)

Buy Now Pay Later (BNPL) is buying whatever you need right now and paying for it later in the form of instalments and it can be used to purchase all kind of items required for several purposes ranging from small purchases in shops to services for instance medical bills along with some expensive things such as home renovations or solar panels.

It is now being widely used by millions of people across the globe. The interesting fact is that if it is managed in a proper manner, it can be a cheap and convenient way to access credit, but if not, it can bring with it late fees dues along with creditworthiness being negatively affected.

How does BNPL work? | Buy Now Pay Later (BNPL)

The BNPL apps allow the users to purchase a specific thing and then paying it off over time in weekly, bi-weekly and monthly instalments. If one is lucky, they can pay over the instalments during the interest-free time offers otherwise sometimes users have to encounter interest-paying periods which are mostly on the higher side.

Most popular BNPL applications include bill me later, PayPal credit, Afterpay, Affirm, Klarna, and FuturePay. Instalments are usually interest-free breaking down the purchase into four equal instalments, the first one being paid at checkout and others being paid afterwards.

How does BNPL affect credit rating? | Buy Now Pay Later (BNPL)

It is often considered that BNPL usually affects credit rating negatively but if the instalments are being paid on time, then that will not affect the credit rating at all. However, in case of missing payments, the BNPL applications can disable the account or demand the remaining balance being paid in full immediately.

Important aspects to consider before using BNPL | Buy Now Pay Later (BNPL)

Although BNPL is a cheap way to buy things it is still considered debt. But one must also consider the following three aspects before getting into the BNPL world.

• Is the item affordable if BNPL was not an option?
• Will it be possible to make repayments?
• Is BNPL the most suitable arrangement for purchasing a particular item? If the answer to all these three questions is a ‘no’ then one should definitely consider using another method of purchases rather than BNPL.

Is it a good idea to use BNPL for online purchases? | Buy Now Pay Later (BNPL)

Sometimes BNPL offers good deals if the payments are being made on a regular basis. Although it is a convenient way to use BNPL for most purchases, however, one must be mindful of the pitfalls of this arrangement.

Advantages of BNPL | Buy Now Pay Later (BNPL)

• No hard credit checks

The majority of the BNPL applications do not conduct a hard credit check while the customers open an account. This is beneficial for the customers since many credit inquiries also lead towards a reduction in credit score. Some applications only conduct a soft pull on the credit report of their customers but this does not affect credit rating.

• Interest-free periods

It gives the customers a chance to avail themselves of interest-free periods and pay the balance within the stipulated time period. It also enables the consumer to enjoy the purchase immediately rather than waiting for it without having to worry about the interest.

• Convenient and fast

The BNPL applications are extremely convenient and fast since it does not require any separate applications and the processing time is also very apt. Moreover, the easy-to-use applications allow users to get through their purchase in less time.

• Regular repayment schedule

Since the number of instalments and timings of repayments is predetermined it is quite easy to repay the amount. Also, the payments are automatically deducted so there is no need to schedule or manually repay the amount.

• Available everywhere

Initially, BNPL was only available online but due to the increasing use and demand, it is now also available in some high-end shops and in-store.

Disadvantages of BNPL apps | Buy Now Pay Later (BNPL)

• Late fees

In case of insufficient funds or missing out on instalment can lead to paying late fees or surcharge. Some fees are reasonable flat rate fees like the ones which are levied on credit cards. But in the case of non-payment of late fees, it continues to add up resulting in increased charges.

Moreover, at times consumers need to be cautious about the deferred interest promotions on BNPL apps. If one is unable to pay the balance before the end of the promotional period interest is charged from the original purchase date which might be expensive.

• High-interest rate

The BNPL apps do not require consumers to pay interest on purchases. But in case of failure of payments before interest periods ends the interest charges are imposed which can be higher than the regular credit cards interest rates.

• Lower credit limit

The BNPL applications are built upon the concept of paying for smaller purchases. But only if the consumer’s income is high, they have the privilege to enjoy higher limits. Having said that it is still recommended to be mindful of the purchases so that large interest fees and late fees can be avoided.

• Don’t build credit

The payments made are never reported to the credit bureaus so its consumers cannot expect any positive outcome of timely payments except for earning ownership.

• Over-spending

With the increase in the use of BNPL many users have reported that it led to overspending and buying unnecessary things as compared to that of using credit cards. Also, users also face challenges with regards to the refund and defective products. Consumers often have to communicate the problem to both merchant and lender which can be a confusing or a daunting task.

Conclusion | Buy Now Pay Later (BNPL)

BNPL is still a grey industry with developing rules and regulations for its effective operations seeing the huge demand and better future prospects. Moreover, once it becomes a regulated industry it will be easier to have consumer protection laws in place along with more check and balance to ensure transparent and fair purchases are being made.

Have you ever tried Buy Now Pay Later? Tell us your experience in the comments bellow!