Are you using the Buy Now, Pay Later programs? Here’s what happens if you don’t pay later
New Delhi: In recent years, the Buy Now Pay Later (BNPL) has grown into an important form of funding. In India, demand for BNPL has been increasing for about 2-3 years, further accelerated by COVID-19. BNPL has become a more convenient form of payment, essentially reducing the financial burden on borrowers by offering IMEs free of charge.
What is Buy Now, Pay Later?
Buying now, paying later is a type of short-term financing. These point of sale installment loans are offered by a number of companies. BNPL can be used at a variety of major retailers, which differ from plan to plan. Some credit card companies also offer installment payment terms for eligible cardholders. Each buy now, pay later plan is unique to its provider, but they generally share a few things in common.
These BNPL loans usually require an initial down payment representing a portion, say 25%, of the purchase amount. Beyond that, the balance must be paid in several installments over a period of a few weeks or a few months. Some BNPL services set the total number of payments at four, while others allow borrowers to choose their own payment schedule based on their financial health. In terms of cost, buy now, pay later, plans often charge no interest and no fees except late fees for missed payments.
How does the buy now, pay later model work?
This concept is not new. In fact, Indians have always known it in an earlier form of payment known as the Khaata system, in which customers paid the entire bill all at once, usually at the end of the month, instead of paying. every time they make a purchase.
Although this system remains common practice in small towns and rural areas, a new twist has been added to the age-old concept of Khaata by digitizing it by these BPNL service providers.
BPNL allows customers to have a seamless shopping experience without having to disclose their bank details or go through multiple authentication steps every time they purchase something. Users can order food, groceries, medicine, etc., from hyperlocal merchants, etc., using the “buy now, pay later” platform, and pay the collected amount later. .
Credit cards vs BPNL: the better choice
While BNPL options only apply to a specific purchase from a specific merchant, credit cards can generally be used anywhere to make many types of purchases. If you have a credit card, you must pay at least the minimum amount due at the end of the month. However, with buy now, pay later, you might have a three, five, or 12 month option. This means that while BNPL can offer more flexible terms, credit cards will generally offer more flexible acceptance.
BNPL’s interest rates and fees vary widely. Some options bear no interest or fees, making it essentially free financing for the consumer. This is possible because BNPL providers still make money on merchant fees embedded in the product price, just as payment networks do on interchange fees for credit cards. They either have a fixed cost or no cost and are very straightforward in showing you how much it will cost.
The longer-term loans offered by BNPL – which can last up to 48 months – typically carry a similar interest rate to a traditional personal loan. However, unlike a loan or credit card, many BNPL providers do not verify credit when approving buyers, making it easier to access finance.
The red flag
Even with all the attractive features and benefits, industry experts say customers should be careful when taking advantage of the buy it now and pay later service.
Although it differs from lender to lender, late fees or penalties in the form of one-off fees are charged, which are usually not compounded, a marked difference compared to credit cards. It is important to note that BNPL is essentially always a loan and therefore BNPL providers can report its repayment behavior to credit bureaus.
Experts say that, like any other loan, the onus will always be on the customer to make repayments promptly to maintain a good credit rating, as most BNPL providers report repayments to the credit bureaus.