Buy Now, Pay Later (BNPL) is a type of no-cost financing option that helps shoppers to purchase an item and pay for it later with an interest-free period. This mode of payment has become very popular, especially during the COVID-19 pandemic.
Some famous BNPL providers in the market include- ZestMoney, LazyPay, Simpl, Amazon Pay Later, Paytm Postpaid, etc. Usually, these apps put down 25 percent of the purchase price and ask the customers to pay off the rest in three equal installments over six weeks with no interest charges.
As quoted by Mr. Anup Agarwal, Business Head at LazyPay, “Today, BNPL has become a convenient payment option among young consumers who may not have access to credit cards or are looking for a better payment experience. Consumers can create a BNPL account instantly without much hassle whereas credit card application is a tedious process.”
This type of payment is most convenient for those consumers who are unable to qualify for a credit card or other forms of financing but would like to benefit from the convenience of spreading out payments. In comparison to a credit card, BNPL often comes with no joining fees, lower interest rates, etc. However, the credit limit of BNPL is quite low as compared to what is offered by a credit card.
Read More: How To Manage Your Credit Card Efficiently?
How Does It Work?
Also known as point-of-sale loans, these programs work like a layaway plan in reverse. The buyer first gets the item in front of him and then makes the payments on the schedule that is chosen by him. The steps involved in the process are very simple-
Step 1: Visit a participating retailer and make a purchase.
Step 2: Select ‘Buy now, pay later as your payment method.
Step 3: Pay a small portion of the total purchase price as a down payment.
Step 4: The remainder will be deducted in the form of interest-free EMIs.
Risks Involved In Buy Now Pay Later
This mode of payment may at first seem very attractive but there are some risks that are involved.
If the repayments are not on time, the buyer may be subjected to fees and interest charges on the unpaid amount. Late payment fees may also be levied. This may lead to a debt trap.
Furthermore, any late payments might be recorded to the credit agency, lowering the buyer’s credit score. This might raise the cost of future loans or cause lenders to reject any new loan applications.
Buyers may also find it difficult to keep track of the installment payments. The problem with most consumers is not the money but the management part.
There is also difficulty in getting a refund if the product is defective or unsatisfactory. This is because then you’ll have to meet the conditions of both the BNPL lender and the retailer. Also, the seemingly low payments may tempt the buyer to spend more.
Conclusion
To avoid these issues, the buyer needs to be very careful about the item of purchase and the amount that is to be spent. There is a need to fix a spending limit keeping in mind the capacity to fill the installments.
Also, before making an order, the buyer must read the terms and conditions on the BNPL provider’s website. Some basic questions like late fees, the impact of late payment on credit score, the delay policy, etc. must be answered.
BNPL is a very convenient way for customers to buy desired things. Moreover, there is a need to be very vigilant while using this mode of payment.
Disclaimer: This article is fact-checked
Sources: Bankbazaar.com, Business Today, CNBC
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