Should you Buy Now, Pay Later?

Buy Now, Pay Later (BNPL) has emerged in recent years as a mode to ease out small credit-based transactions. The industry has taken major strides all over the globe, to alleviate the need for this type of transaction.

The premise of BNPL is basically enabling consumers to buy something at a point in time and pay for that good or service at a later date. Like credit cards, up to a certain date, the credit is generally interest-free. A typical transaction (card based/BNPL) involves 3 parties: the consumer, the merchant and the payments provider. In the case of BNPL, the payments provider would generally be a fintech company.

The attraction of consumers to the idea of BNPL is obvious. When people want to buy something that they don’t have the money for at that particular point in time, they can reach into the pockets of the BNPL provider.

For merchants, this is attractive because offering an option like this during checkout means more people actually buy, instead of leaving the final cart as is. They obviously have to pay a fee to the BNPL companies, but the service they are availing means they get more orders and most probably, for more money per order.

As I said, BNPL providers (who are the lenders) in this whole transaction, take a fee from merchants for taking the risk of the consumer not paying back the credit/loan availed by them.

You might think, that the concept of BNPL is almost the same as credit cards. And you’re not wrong. Both are based on the premise of someone paying for you when you buy something and you paying them back. If you don’t pay them back by the pre-agreed upon time, you pay interest to them. But there are some differences between the two, but those are not very stark ones.

One major difference between credit cards and BNPL is the eligibility criteria. Credit cards have very strict eligibility criteria, including credit history, score, income proof, etc. without which you won’t be issued one. BNPL schemes however have a straightforward quick process with nowhere near as strict criteria. BNPL is geared towards people who don’t possess or don’t want to use credit cards but need quick and easy access to short-term credit/loans.

Another difference to note is between the time period of repayment. BNPL schemes are generally based on a 15-20 day payback period while credit cards offer periods of more than 30 days most of the time. The costs associated with credit cards are higher than BNPL generally, due to the various types of fees attached to the former, like joining and renewal fees.

But whatever option you choose, please remember to only spend what you know you can afford, because the interest rates that are applied on both these options are much higher than any other type of loan you might take, and the snowball effect that takes place if you miss these payments can lead to financial ruin very quickly.

So, stay safe, and read more from me here. And do let me know if you want a specific topic covered! Subscribe for free to receive new posts and support my work.