Buy now, pay later is a unique credit option given largely by e-commerce websites in partnership with well-known fintech firms. The customer is given a credit limit that may be utilized to purchase things on the e-commerce website without having to pay for them up front. The borrowed funds will be returned in 3, 6, 9, or 12 monthly EMIs at a minimal interest rate.
Buy Now Pay Later – Pros & Cons
Buy Now, Pay Later is a new credit alternative offered to millions of people who would otherwise be unable to obtain a regular credit card. The card functions similarly to a credit card, but what makes it unique?
- Credit cards have hidden charges, whereas BNPL cards follow a transparent and low-cost pricing model.
- A person should have a good credit history to apply for a credit card, but credit history is not mandatory for a BNPL card.
- Credit cards have a wider acceptance in the market, whereas the BNPL cards work with limited online merchants and fintech organizations.
- Credit cards have a defined and shorter interest-free period, whereas the interest-free period on BNPL cards can go up to 48 months (4 years).
- BNPL cards are easily approved, while there are a number of criteria that one must meet to get a credit card.
- Credit cards have an option to pay the minimum due amount, while there is a fixed monthly instalment that one should pay on BNPL cards.
- Credit cards have added benefits like cashback, reward points, air miles, etc. There are no such benefits with BNPL cards.
- The annual interest rate on credit cards is up to 48%, which is usually fixed, whereas the interest rate on BNPL cards is around 24% and varies due to different factors.
What are some disadvantages of using Buy Now Pay Later to pay for your purchases?
BNPL charges higher merchant fees - Customers and merchants are both charged by banks and credit providers who utilize these BNPL services. However, as compared to standard payment methods, BNPL systems have higher costs, which typically range from 2 to 6% of the total transaction value.
BNPL financing encourages consumer debt - BNPL has another disadvantage: it often pushes people to buy more items than they can afford, despite the fact that they are represented as consumer-friendly financial solutions. If customers are unable to pay on time, this can place them in a tough financial situation and potentially destroy their credit scores.
Multiple deals from different vendors can be confusing – A specific buy now pay later scheme may be available across different vendors and may be offering different discounts and deals across multiple platforms. It becomes difficult for the consumers to determine the right platform and the right deal that is most beneficial for them.
Is the BNPL card a revolving credit card?
Yes, it's a form of installment loan in which you make equal monthly payments. The user begins paying interest on the amount used and spent after a defined "interest-free period." Penalties are imposed, just as they are with loans, if a person fails to make timely payments.
Impact of BNPL on credit scores: There is no effect on a person's credit score as long as payments are completed on time. However, if you make late or missing payments on the amount you’ve borrowed, the lender reports it to the credit bureau affecting your credit score.
Read more on how paylater services can affect your credits scores
Some factors to consider while opting for a Buy Now Pay Later plan
- The quantity of merchants who accept the payment method should be checked by the user.
- The terms and conditions of the card, as well as the interest rate and any restructuring possibilities.
- Even though it is not a credit card, it acts in many ways like one, therefore the cardholder must grasp the need of repaying the card within a set time limit.
Buy Now Pay Later – FAQs
- What is the BNPL credit interest rate?
Buy Now Pay Later credit options give you up to 30 days to settle the total amount or the EMIs you've chosen without paying interest. If you do not pay this amount, you may be charged late fees ranging from Rs.100 to Rs.500 for each instance.
- What is the procedure for applying for Buy Now Pay Later services?
The majority of BNPL services are available through e-commerce websites. During the checkout process, users are frequently prompted about the BNPL program. When you click it, you'll be brought to the partner's website, where you may check your eligibility and submit your application.
- Why are the majority of BNPL services only available via smartphone app?
BNPL services are new lending services that aim to provide digital account management simplicity. As a result, they're largely available through smartphones.
- Where can I use the Buy Now, Pay Later payment method?
The majority of online e-commerce sites accept BNPL payments. They've even ventured into actual businesses with the use of payment applications these days.
- Who is willing to invest in BNPL schemes?
The majority of BNPL schemes are backed by major banks and NBFCs and are available through e-commerce platforms.