What Is Buy Now, Pay Later, And Should You Use It?
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Noticed a new payment option when you check out your purchase? A whole slew of Buy Now, Pay Later (BNPL) platforms have recently appeared in Malaysia. They promise an easy way to afford your latest purchase, usually without any interest or fees. But how do they work, and what’s the catch?
As its name suggests, BNPL allows customers to make a purchase and receive the product immediately but pay for it at a later time, usually over a series of installments.
What is Buy Now, Pay Later?
BNPL platforms let you make purchases by splitting the cost into monthly instalments, usually at 0% interest. Alternatively, some platforms let you delay the payment until the end of the month, or the following month. The catch is that they might charge you late payment fees if you don’t pay up.
Here’s how it works:
- When you purchase something through a participating retailer, you can choose to pay via a BNPL platform.
- You may be asked to make a down payment, typically the first month’s instalment of the purchase amount.
- You pay off the rest through monthly instalments.
Advantages of Buy Now, Pay Later
- 0% interest instalments. Most BNPL platforms offer 0% interest on your purchases. This means that you don’t have to pay any interest or fees – unless you miss a repayment.
- Might not need a good credit score to qualify. To apply for a 0% interest instalment with a credit card, you’d need, well, a credit card. And to get one, you’d need a decent credit score. But some BNPL platforms may not perform credit score checks, which means you could take out an instalment with them even if you have a poor credit score.
- Break purchases into manageable payments. BNPL can be useful if you have a large purchase, but you want to break it up into smaller payments so you don’t strain your monthly budget. For example, if your laptop suddenly breaks down, and you need RM3,000 to replace it, you could break that into three monthly payments of RM1,000 instead of draining your emergency fund. This gives you some financial buffer in case another financial emergency comes up this month.
- Fixed interval payments. Convenient, structured, and disciplined way to pay for purchases over time.
- Fast. Approval is usually very quick.
Downsides of Buy Now, Pay Later
- High late payment fees. Most BNPL platforms will charge you a fee if you can’t pay your instalment. Depending on the platform, this may end up being more expensive than using a credit card.
- Might make you spend more. BNPL platforms make it easier to buy things you might not otherwise be able to afford if you had to pay for it in full, or if you hadn’t budgeted for it. While this can be useful for things that you need, it also makes it easier to spend on impulse purchases or unnecessary items.
- May hurt your credit score if you miss payments. Some platforms may report your missed payments to credit reporting agencies, which could hurt your credit score.
- Payments can be difficult to keep track. This happens if multiple purchases are made from multiple providers.
- May not qualify for card rewards. Generally does not earn you any rewards or cashback benefits.
BNPL vs credit cards
While both credit cards and BNPL involve delayed payments, the use of a credit card to pay for purchases only requires you to make the minimum payment due on the card each month. Interest accrues on the remaining amount until you pay it off in full. On top of that, the outstanding balance can be carried indefinitely (while paying a very high interest rate!).
On the other hand, BNPL purchases often do not charge interest. However, they do have a fixed schedule for repayment. At the moment, providers in Malaysia allow tenures of up to six months at a time. There are hefty late payment fees that will be added if you do not follow the repayment schedule. If you still fail to pay up despite the late fees imposed, your balance may be sold to a debt collection agency and your credit score could take a hit.
Buy Now, Pay Later platform comparison
Which BNPL platform should you go with? Here’s a comparison of eight platforms available in Malaysia: Atome, myIOU, Hoolah, PAYLATER, PayLater by Grab, SPayLater by Shopee and Split.
| Platform | Tenure | Processing fee | Late payment fee |
|---|---|---|---|
| Atome | 3, 6, or 12 months | 0% | RM30 per late payment (max RM60 per purchase) |
| myIOU | 2, or 3 | 0% | RM5 or 1% on outstanding amount per late payment - whichever is higher |
| MobyPay | 2 to 6 months | 0% | RM20 per late payment |
| PAYLATER | 4 months | 0% | RM10 for every 7 days of non-payment |
| PayLater by Grab | Pay next month or 4 months | 0% | RM10 for overdue postpaid bills or every instalment bill to reactivate a suspended PayLater account |
| SPayLater by Shopee | Pay at the end of the month or , 3 6, 12 months | 1.5% a month on total order amount for 3 month plan and up | RM10 on late payment |
1. Atome
| Tenure | Late payment fee | Credit limit | Merchants include |
|---|---|---|---|
| 3, 6 and 12 months | RM30 per late payment (max RM60 per purchase) | Non credit card users: RM1,500 Credit card users: RM5,000 | Zalora, The Face Shop, Shein, Ezbuy, Machines, Agoda |
However, there is a relatively high penalty charge of RM30 per late payment, although the maximum late fees you can incur is RM60.
2. myIOU
| Tenure | Late payment fee | Credit limit | Merchants include |
|---|---|---|---|
| 2 or 3 months | RM5 or 1% on outstanding amount per late payment (whichever is higher) | RM1,000 to RM10,000 | Senheng, Drone Hub, Gintell |
However, it appears to support a limited number of merchants – and those that it does support also seem to be lesser-known brands. But on the upside, it has a few merchants for those looking for B2B services.
myIOU charges a minimum of RM5 or 1% for each late payment. That’s comparable to late payment fees on credit cards, which typically charge a minimum of RM10 or 1% per late payment.
3. MobyPay
| Tenure | Late payment fee | Credit limit | Merchants include |
|---|---|---|---|
| 2 to 6 months | RM20 per late payment | RM10,000 | OGAWA, OTO, La Gourmet, Delfino |
Both platforms offer flexible payment options, including interest-free instalments of up to 6 months and PayNow for immediate payments. At the same time, MOBY Islamic ensures that all retail partners, transactions and processes are aligned with the Shariah law.
4. PAYLATER
| Tenure | Late payment fee | Credit limit | Merchants include |
|---|---|---|---|
| 4 months | RM10 for every 7 days of non-payment | Based on user assessment | Oppo, Gamer’s Hideout, DJI, DirectD, Metrojaya |
Unlike other platforms in this list, which charge late fees per month, PAYLATER charges an RM10 fee for every seven days of non-payment. This means that if you continuously miss payments, you could incur fees of (RM10 x 4 weeks x 3 months; assuming the first month’s instalment is paid upfront) of RM120.
5. PayLater by Grab
| Tenure | Late payment fee | Credit limit | Merchants include |
|---|---|---|---|
| Pay the following month or 4 months | RM10 for overdue postpaid bills or every instalment bill to reactivate a suspended PayLater account | Based on user assessment | DirectD, Shiseido, Zalora, Hermo, Shein, Machines |
If you miss a payment, your PayLater account will be frozen, and you will have to pay an RM10 administration fee to reactivate it – this is only applicable for customers who choose the monthly installment payment method only.
6. SPayLater by Shopee
| Tenure | Processing fees | Late payment fee | Credit limit |
|---|---|---|---|
| Pay at the end of the month or 3, 6, or 12 months | 1.5% a month on total order amount for 3 month plan and up | Maximum RM10,000, based on user assessment | Maximum RM10,000, based on user assessment RM10 on late payment |
This makes it quite expensive to pay through instalments. For example, if you make a purchase of RM3,000 and choose a tenure of six months, you may have to pay RM225 (RM3,000 x 1.25% x 6 months; assuming you pay the first month upfront) in processing fees alone.
What happens if you miss a payment?
a) You may incur late payment fees
Buying through a BNPL platform is only interest-free if you pay on time. If you don’t, you could incur large late payment fees.
For example, here’s how much fees you may potentially pay on an RM2,000 purchase if you continuously miss your payments for a period of three months:
| Platform | Interest | Late fees or administration fees per month | Total interest + late/administration fees after three months |
|---|---|---|---|
| Atome | - | RM30 | RM60 |
| myIOU | - | 1% on outstanding amount | RM20 |
| MobyPay | - | RM20 | Account suspended or terminated |
| PAYLATER | - | RM10 per week = RM40 | RM80 |
| PayLater by Grab | - | RM10 | RM20 |
| SPayLater by Shopee | 1.25% a month x 2 months on RM2,000 = RM50 | RM30 | RM110 |
b) The BNPL may call a debt collection agency
If you continuously can’t make your payments, your BNPL platform could appoint a debt collection agency (the same agencies employed by banks when you cannot repay your loans) to collect the debt from you. You can find this information in the terms and conditions pages of each BNPL platform. For example, here’s what’s in Atome’s Deferred Payment Agreement:
If your Account is subject to Suspension for late or rejected payments, you expressly consent to, authorize and instruct us to charge your preferred Payment Method and/or any other designated debit card or credit card to collect the total of any missed Deferred Payment at any time after the due date of the missed Deferred Payment. You agree that we may appoint third party collection agencies to collect any amounts owing to us under this Agreement without further notice to you. [emphasis ours]
c) You may hurt your credit score
If you keep missing your payments, your BNPL platform may report it to credit reporting agencies.
This could hurt your credit score, which makes it harder to apply for home loans, vehicle loans or credit cards in the future. However, not all platforms may report your debt to credit reporting agencies.
What to check before you BNPL
Before committing to a BNPL arrangement, make sure you are clear on all the terms and conditions. Every company does things differently. Some of the most important terms you need to keep an eye out for include:
1. Application process
Most BNPL companies generally only require a soft credit check for approval with this payment method. This means that your credit score will not be affected. However, there are exceptions to this, where some companies may conduct a hard pull of your credit. This means that a creditor has requested to look at your credit file to determine how much risk you pose as a borrower This can end up affecting your score temporarily.
2. Allocated repayment time
It would also do you good to learn how your BNPL payments work. This will help you to budget the required amount by the allocated time, so you will not miss the deadline on payments, potentially incurring additional late charges. As mentioned previously, BNPL arrangements often come with 0% interest, but that is not always the case. If you are not careful, you may end up with a BNPL purchase that charges equal, if not more interest than credit card installments.
3. Interest rates and late payments
Another thing to keep in mind is the terms of repayment that you are agreeing to. For example, missing a payment or not having sufficient funds in your account when payment is due could trigger fees and penalties with BNPL, and customers may also have to pay interest for the rest of the payment period. Some BNPL penalties – like that from Shopee – can add up to exorbitant amounts.
4. Return policies
One final thing to consider is the return policy of items bought via BPNL. Returning an item may be possible. However, due to this method’s nature, the merchant might only be willing to cancel your installments or offer a refund on your purchase after they can verify that the return has been accepted and processed.
Who is BNPL for?
BNPL is aimed at those who would like more options for installment payments, but are unable to qualify for credit cards. These could be lower income individuals who need the option to afford certain household appliances or items, or for those who are on a tight budget and need to spread out some payments to stick to it.
However, it should be noted that the short term nature of BNPL means that the installments will still be higher than credit card or store in-house repayment plans. So while the overall amount might be lower with BNPL, you are still on the hook for more each month.
The dangers of BNPL are similar to that of a credit card. You will require self control in order to ensure that you do not end up buying more than you can afford. Buying now and paying later can still send you into debt, even if the late payment charges are lower than that of credit cards and bank loans.
Should you Buy Now, Pay Later?
BNPL can be useful if you want to make big purchases without significantly affecting your monthly cash flow. Here are a few situations where it can make sense:
- If you can repay on time.
- If you need to make a necessary or emergency purchase – such as replacing a broken-down fridge – and you want more time to make repayments.
- If you need to take out credit for a necessary purchase, but your credit history isn’t good enough to get a credit card or personal loan.
But if these situations don’t apply, consider if you can delay the purchase until you have enough saved. After all, buying now and paying later means borrowing from your future self – and it can be hard to feel good about a new pair of sneakers or a fancy face wash when you have debt to repay.
