Should You Buy Now, Pay Later?

Buy Now, Pay Later (BNPL) is a payment option  has been around for some time and has been quickly gaining traction among consumers in recent years.

The onset of the COVID-19 pandemic caused a consumer paradigm shift towards online shopping, a change that did wonders for BNPL’s popularity as people began relying more on the internet for purchases.

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. 

But wait a second. Isn’t that just a credit card installment plan? Yes, both payment methods are incredibly similar. However, there are a few key differences between the two.

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.

For the most part, BNPL is not as widely accepted as credit card installment plans. Despite this, BNPL can still be a rather attractive option when it comes to smaller purchases whilst browsing the web.

4 things 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:

• Application process
• The time required for repayment
• The interest rates (if any)
• Late payment conditions
• Return policies

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.

Pros and cons of using BNPL

Here’s a quick summary.

Pros:

• Convenient, structured, and disciplined way to pay for purchases over time at fixed intervals.
• Commonly has little to no interest rates compared to credit card installment plans.
• A good credit score is not a necessity to apply for BNPL in most cases.
• Approval is usually very fast.

Cons:

• Payments can be difficult to keep track of (particularly if multiple purchases are made from multiple providers.
• Generally does not earn you any rewards or cashback benefits.
• Ease of payments could lead to overspending.

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. If only because credit card providers tend to allow for longer repayment periods. 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.

Overall, BNPL is yet another tool in your financial toolkit. It can help you stick to a budget and smooth over rough patches, or it can do substantial damage if you’re not careful. So like any other financial product, it is up to you to use it wisely and live within your means.