Buy Now, Pay Later is a new credit alternative for millions of people who do not have a typical credit card. Credit cards have stringent eligibility requirements, making it difficult for a low-income earner to obtain one. Given the variety of perks available with a credit card, many people lack the spending power that a credit card provides in today's economy.
Buy now, pay later financing can help increase your purchasing power and improve your credit score at the same time. But not every loan offer is the same. Depending on your credit history and the type of loan you accept, you may have to pay higher fees and interest rates, and may have to pay them for a longer period of time than typical loans. How you purchase and make repayments will affect your credit score.
BNPL is mainly focused on the under-financed segment of the loan sector and hence could be an excellent approach to begin strengthening one's credit rating.
Individuals can readily obtain BNPL approvals; nevertheless, failure to make payments on time can harm one's credit score. As a result, just like with other loans, borrowers must guarantee that payments are made on time in order to preserve a good credit score.
Also Read: 5 Things To Know About Buy Now Pay Later Schemes
Factors To Consider While Getting A Buy Now Pay Later Loan
Loan repayment history makes a big impact on your credit score. In order to maintain a good repayment history, it is important to keep the total of outstanding debt to a minimum and to make regular repayments.
Buy Now Pay Later can help improve your credit score by allowing you to take a loan for a term that may be longer than the standard credit card period of repayment. This will help improve your score by showing that your ability to pay on time is not as dependent on the length of your credit history.
Interest rates on Buy Now Pay Later are high due to the fact that they are not subject to the same credit bureau regulations as traditional loans. They offer significantly higher interest rates as well. This may push you into a debt trap faster than traditional borrowing methods and affect your credit score adversely.
If you do not pay and the lender is to sell your debt to a collections agency, they will report any unpaid payments to the major credit bureaus, and that will negatively affect your credit score.
Also Read: The Big 5: Top Factors That Affect Your Credit Score
How Does BNPL Help Me Pay For My Purchases?
BNPL is generally issued by e-commerce retailers in collaboration with a bank, NBFC or other financial institutions. In this plan, the buyer is given a credit limit that can be used to buy things from the e-commerce website. This sum will be paid in EMIs of three, six, nine, or twelve months at a nominal interest rate. Customers may be eligible for 'No Cost EMIs' on the purchase now pay later limit for a limited number of months, depending on their eligibility. Though this is most common on e-commerce platforms, shops are also adopting this payment method in order to improve sales and revenue.
In most cases, the buyer must sign up for this payment option online. You must provide your PAN and bank account information. The finance firm then processes this, usually in collaboration with the vendor, and your monthly credit limit is established.
This credit limit is usually determined by your bank account's average monthly balance. Since this account is linked to your bank account, any unpaid balance will be debited straight from your bank account.
- When you want to buy something from the buyer, you add it in your shopping cart.
- Go to the payment screen and look for the BNPL option.
- Some purchases may have EMI alternatives through the same BNPL process. Some of them may possibly be eligible for 0% EMI.
- Choose the BNPL payment option, the number of EMIs you want to repay the amount in, and then press enter.
- The billing has been completed, and your bank account will be debited beginning with the next billing cycle. That's all there is to it.
Why Should You Use BNPL To Pay For Your Next Purchase?
Here are a few reasons why you should use BNPL for your next purchase:
- Increases your overall limit
- Consumer purchasing power should be increased
- Additional advantages of adopting BNPL schemes collaboration with e-commerce sites
- On festival days and during special sale seasons, you can get no-cost EMI offers
- The application process is simple, and there is complete transparency
Without a question, Buy Now Pay Later is a novel method of purchasing goods. You receive a discount on a product or service today and can pay for it later when you have more money.
Be wary of buy now, pay later schemes. It is an unique type of loan, and you will confront a different set of problems as well as incentives and benefits. If you don't handle your buy now, pay later plan properly, it can be detrimental to your credit score. Credit can be a useful instrument in today's economy. The caveat is that you must pay interest on the finance costs over time. Before you hit the submit button on that Buy Now Pay Later deal, you should conduct your research.