Buy Now Pay Later is short-term financing that allows customers to make purchases now and pay for them at a decided future date. It is often interest-free. It is also referred to as a sale investment loan, and it is becoming a popular payment option in India, especially when shopping online. It is at times convenient for the consumers, but it does have some downsides.
What Is Buy Now, Pay Later?
BNPL is a financing agreement that allows consumers to buy things without paying for them all at once. To avail of this, you sign up with a company that provides this facility that makes the payment on your behalf when you purchase anything.
Once the lender pays the provider on your behalf, you must repay the lump sum amount to him within a stipulated period. You have the additional option to pay it via no-cost Equated Monthly Installments (EMIs). If you cannot repay him the total amount within the stipulated period, then the lender may charge you interest on the amount.
How does Buy Now, Pay Later work?
Every company has its terms and conditions regarding the Buy now, pay later programs. Generally, the point of sale installment loans operate on the following lines:
- You can purchase at a participating retailer and can opt for the Buy now, pay later at checkout.
- If approved, which can be told in seconds, you make a down payment, i.e. 25% of the total overall amount you purchased for.
- The remaining amount is then paid off in a series of interest-free installments.
- This remaining amount can be paid via bank transfer, checks, debit, or credit cards automatically.
If you are wondering, yes, BNPL is different from making a purchase made with a credit card. When a credit card is swiped to pay for things, you only need to make the minimum payment that is due each month. On the remaining amount, interest is calculated until it is paid off in full. When you use a credit card, you carry the balance indefinitely.
Whereas, in BNPL, often interest or fees are not charged. They have a fixed repayment schedule which is generally weeks or months. You are already told what you will need to pay each time, usually the same amount. When compared, it is somewhat similar to any other sort of unsecured consumer or personal loan.
Most BNPL companies now only require a soft credit check for approval, which usually doesn’t affect your credit score. Other methods conduct a hard pull of your credit, which temporarily knocks a few points off your credit score.
All the purchases are eligible for the Buy now, pay later financing. To avoid any fraud, there are also limits on the amount you can finance in this way. In 2020, with the rise of e-commerce in general, the popularity of Buy now, pay later grew for the smaller purchases when shopping online.
Special Considerations for Buy Now, Pay Later
You must be aware of some of the things before entering into a BNPL arrangement:
Foremost it is essential to understand the repayment terms that you agree to. These terms can be different for every buy now, pay later company. Different companies have different payment times. Some companies may also require you to pay the balance amount with the biweekly payments over a month-long period. Other companies may give you three months or even longer to pay off your purchases. And if there is an interest rate, it depends on the terms of the loan.
It is essential to know how your payments will work to plan for them in your monthly budget. It ensures that you can afford your payments as well as make them on time. If you miss a payment for a buy now, pay later agreement than it can result in the late fees. This late payment history, when reported to the credit bureaus, can hurt your credit score.
Buy now, pay later platforms can also charge interest on the purchases that can easily outpace or match what you might be paying with your credit card. Also, keep in mind that though you may be approved for a 0% interest point of sale, it is not always guaranteed.
Thus, it is essential to consider return policies and how the BNPL might affect your ability to return something you have purchased. It is also possible that the merchants may allow you to return the items that you wouldn’t be able to cancel the BNPL arrangement until and unless you have provided them with the proof that the item has been accepted back.
Advantages and Disadvantages of Buy now, Pay Later
- A disciplined and convenient way to pay for purchases over time.
- Usually, zero or lower interest rates than the credit card
- Approval time is fast.
- A high credit score is not required to qualify.
The BNPL agreement allows the consumers to pay for the things over some time, excluding the involved interest charges. It is also possible to approve this type of financing method when you have no other option because of the low credit score. These Buy now, pay later loans don’t add up to your credit card debt and don’t affect your credit score.
- It is easier to overspend, and hence payments at times can be hard to track.
- No cash backs and rewards are earned on the purchases.
- Late or missing payments may cause damage to the credit score.
- Payments may at times continue even if the item is returned.
Making payments via Buy now, pay later arrangements makes you miss out on many perks offered by the credit card, such as cashback or reward points. Also, the return on the item purchased through BNPL can get complicated.
Buy now, pay later means that the consumers get the things they need with additional time to pay for them. Like any other payment scheme, it is essential to read the fine print carefully before signing up for these buy now, pay later arrangements. It is crucial to consider the penalties that you may face in case you are unable to pay.