Using BNPL

Is Buy Now, Pay Later Worth It?

Buy Now, Pay Later (BNPL) is a payment option that has been around for a while and rapidly gaining ground among consumers in recent years.

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

As the name suggests, BNPL allows customers to make a purchase and receive the product immediately but pay for it later, usually in instalments.

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

BNPL vs credit cards

Although credit cards and the BNPL involve deferred payments, using 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 repay it in full. Plus, the outstanding balance can be carried over indefinitely (while paying a very high interest rate!).

On the other hand, BNPL purchases often do not charge interest. However, they have a fixed repayment schedule. Currently, vendors in Malaysia allow terms of up to six months at a time. There are high late payment fees that will be added if you don’t follow the repayment schedule. If you still don’t pay despite being charged late fees, your balance could be sold to a debt collection agency and your credit score could suffer.

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

4 things to check before you BNPL

Before committing to a BNPL arrangement, make sure you understand all the terms and conditions. Every company does things differently. Some of the more important terms you need to keep an eye out for include:

  • Application process
  • The time required for reimbursement
  • Interest rates (if applicable)
  • Late payment conditions
  • Return Policies

1. Application Process
Most BNPL companies usually 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 do a heavy extraction of your credit. This means that a creditor has asked to see your credit report to determine the level of risk you pose as a borrower. This may end up temporarily affecting your score.

2. Allocated repayment period
It would also do you good to know how your BNPL payments work. This will help you budget the required amount on time, so you won’t miss the payment deadline, which could incur additional late fees. As mentioned earlier, BNPL deals often come with a 0% interest rate, but this is not always the case. If you’re not careful, you can end up with a BNPL purchase that charges interest equal to, if not more than, credit card installments.

3. Interest rates and late payments
Another thing to keep in mind is the refund terms you agree to. For example, missing a payment or not having sufficient funds in your account when the payment is due may result in fees and penalties with BNPL, and clients may also have to pay interest for the remainder of the payment period. Some BNPL penalties – like Shopee’s – can reach exorbitant amounts.

4. Return Policies
One last thing to consider is the return policy for items purchased through BPNL. Returning an item may be possible. However, due to the nature of this method, the merchant may only want to reverse your installments or offer a refund on your purchase after verifying that the return has been accepted and processed.

Advantages and disadvantages of using BNPL

Here is a brief summary.

Advantages:

  • Convenient, structured and disciplined way to pay for purchases over time at fixed intervals.
  • Usually has little to no interest rates compared to credit card payment plans.
  • A good credit rating is not a requirement for applying to BNPL in most cases.
  • Approval is usually very fast.

The inconvenients:

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

Who is the BNPL for?

BNPL is for those who want more options for installment payments, but cannot qualify for credit cards. These can be low-income people who need the flexibility to purchase certain appliances or household items, or those on a tight budget who need to spread out certain payments to stick to it.

However, it should be noted that the short-term nature of BNPL means that installments will always be higher than in-house credit card or in-store repayment plans. If only because credit card providers tend to allow longer repayment periods. So, although the overall amount may be lower with BNPL, you are still obligated to pay more each month.

The dangers of BNPL are similar to those of a credit card. You will need self-control to ensure that you don’t buy more than you can afford. Buy now and pay later can still get you into debt, even though late payment fees are lower than credit cards and bank loans.

All in all, BNPL is one more tool in your financial toolbox. It can help you stick to a budget and iron out difficulties, or it can cause major damage if you’re not careful. So, like any other financial product, it’s up to you to use it wisely and live within your means.

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