If you buy stuff online, you would have come across BNPL, which is nothing but an acronym for Buy Now, Pay Later. And this is a hot trend these days in the payment space in India. Most of the BNPL providers are available at the checkouts of popular online shopping sites like Amazon, Flipkart, etc.
The name itself gives it.
You can ‘Buy Now’ but you can ‘Pay Later’.
What happens exactly is that you get to buy stuff now and pay later interest-free as long as you repay the entire ‘loan’ amount on or before the due date. But if you miss a timely payment, then you will end up paying costly fees and interest at rates much higher than even those of the typical credit cards.
In a way, it’s like how credit cards work. Only thing is that the borrower does not need an actual credit card to get that line of credit. No doubt it does provide a frictionless experience that makes shopping more seamless these days.
But it is not something that you should get used to.
I know my young readers will not like this view. And maybe term me as old school.
But it does make sense to say a big No to BNPL schemes.
The fact that you don’t have the money upfront to pay means you are running low on cash. Right? So in a way, you are trying to purchase something and trying to go beyond your means. It is still ok for meeting a short-term credit crunch. But if this becomes a regular feature of your life, then you are doing something wrong.
BNPL mindset is detrimental to long-term financial success.
Remember that it’s basically a temporary loan. And any loan is a loan. You are better off avoiding loans. If you get into this habit of BNPL, you can very easily get into a debt trap and spiral downwards. And debt trap may lead you to bad repayment behavior and that can impact your credit score.
And don’t be under the assumption that BNPL companies are not here to make money as they are offering you an interest-free line of credit. These companies are here for profit. How do BNPL Companies make money? From borrowers, they take interest (for payments beyond due date) and late fee charges. From sellers too, they get their share. The seller or merchants usually pay BNPL companies a percentage of the purchase amount.
Should you use the ‘Buy Now, Pay Later’ option instead of credit cards?
It’s up to you. More important is that irrespective of what you choose, you should be able to clear off the full dues before the due date. And don’t get in the habit of going overboard with your credit card usage or BNPL usage. You will screw up your financial life pretty soon.
So Buy Now, Pay Later vs Credit Card payment – Which is better? Take your own pick depending on your requirements.
You may ask that is it possible that BNPL will push credit cards on the way out? I don’t think so. Both have their use cases and will remain here. But no doubt youngsters will accept BNPL more happily than their older counterparts.
Related Readings (on Credit Cards):
- Credit card is not your Emergency Fund
- How to choose the Best Credit Cards in India?
- Is it OK to take Personal Loan to clear Credit Card dues?
- How is credit card interest calculated?
- Paying Minimum Amount Due (MAD) is not OK
- Credit cards are not Evil
So be careful with ‘Buy now, pay later’ apps and payment options. Don’t get into this addictive habit of buying now and paying later. You don’t want ‘Buy-Now-Pay-Later’ to soon become ‘Buy-Now-Regret-Later’. Isn’t it?
And if you ask me, then I would suggest you keep your life simple. Buy only when you can pay in full. Else, delay buying.