Buy Now Pay Later – The Latest Payment Scheme Explained

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  • Background 

    Hey, what is BNPL to start with?

    Think…

    Buy Now Pay Later

    What does it mean….?

    As the name suggests, Buy Now Pay Later, hereafter referred to as BNPL allows Customers to purchase an item right away with the ‘convenience’ to pay later.

    But, is this scheme really a convenience or should we be a bit more careful before signing up…Read on!

    Which Companies offer BNPL

    To understand this service further, let us look at some of the Companies that offer Customers this option to BNPL.

    With the advent of numerous fin-tech or (Financial Technology based firms), the BNPL proposition is being commonly offered by many companies in the world- Afterpay Limited, Klarna from Sweden, Affirm Holdings Inc, PayPal’s “Pay In 4” to name a few.

    In fact, if you read their names closely, “Afterpay” and “Pay in 4” actually convey the service that they are offering to their customers. Basically, when Customers are shopping at different retail websites (which obviously became very common during the pandemic months), they are offered the option of purchasing high-price items and repaying them over a period of time. So, for example, if a Customer wants to purchase a pair of shoes costing US$ 200, she has the option to split the repayment into 4 installments of US$ 50 each

    Sounds good right? So, is there a catch

    Revenue Stream for Companies  

    Remember, every Company out there exists to make a profit? Now, where do BNPL offer Companies to make their profits?

    While most of them do not charge interest on the installments paid- e.g., US$ 50 in our above example does not have an interest component.

    But…

    Yes, there has to be a but

    But, if a Customer delays on any of the remaining installments, then late payment fees kick in! These can go up to 25% of the missed amount and depend on whether there are any regulations in the market.

    Moreover, BNPL providers negotiate fees with the merchants for who’s products this service is being offered and some of them do charge interest for longer-duration repayments say stretching up to 12 ‘convenient’ installments.

    Should we take BNPL or avoid

    In life, we must follow a very simple principle- only and only spend the money you have and never live on borrowed money.

    Why?

    Very simple: if you can afford something pay for it in full. There is no point in buying something and hoping we can make the payments in future. “Hoping” means there is uncertainty and in case we miss any payments, there are huge penalties to pay in terms of late fees – completely avoidable hassles.

    Also, missed payments mess up our Credit scores which impact our ability to take out future necessary loans for say purchasing a house, medical emergency or further studies.

    In summary 

    Say NO to BNPL schemes and resist the temptation to splurge on items with money you don’t have with you…live a simple and peaceful life thereafter! ?

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