“Buy Now, Pay Later” Red Flags

The festive season is approaching, and we cannot avoid the urge to Shop online.

While shopping online, you must have heard of BNPL, or the “Buy Now, Pay Later,” option. Additionally, this is a popular trend in India’s payment industry right now. Most BNPL sellers are accessible at the checkout of well-known e-commerce platforms like Amazon, Flipkart, etc.

As the name suggests, you can buy stuff now and Pay for it Later.

In simple terms, you are allowed to make purchases now and pay for them at a later time without incurring interest—as long as you pay back the whole “loan” amount by the deadline. However, you will have to pay expensive fees and interest at rates that are far greater than those of regular credit cards if you fail to make your payment on time.

It operates quite similarly to credit cards. The person applying can obtain that line of credit without really needing a credit card. Undoubtedly, it offers a smooth experience that contributes to the present-day ease of buying.

But you should not make it a habit of buying now & not paying. I understand this viewpoint won’t sit well with younger readers. And call me backward, perhaps. But let me explain why does it make sense to say No to such schemes.

You are running short on cash since you do not have the necessary funds in hand to make the payment. You are, therefore, attempting to buy something while also trying to spend more than you can afford. To fulfill a temporary credit shortage, it is still acceptable. However, you are doing something incorrectly if this starts to happen daily in your life.

This mindset is harmful for the long-term financial situation.

Understand that this is essentially a short-term loan. Moreover, a loan is a loan. You should stay away from loans. You might quickly get into a debt trap and spin out of control if you start doing it frequently. Furthermore, being in debt might cause you to make poor repayment decisions, which can lower your credit score.

Although BNPL firms are providing you with an interest-free line of credit, you shouldn’t assume that they are not in business to generate money. These businesses exist to make money. How Do BNPL Businesses Turn a Profit? They levy late fees and interest to borrowers who pay beyond the due date. They receive their cut from sellers as well. BNPL firms are often paid a portion of the purchase price by the seller or merchants.

Option between the ‘Buy Now, Pay Later’ option and credit cards:

You have the final say. What matters most is that you should be able to pay off the entire balance before the due date, regardless of the option you select. Additionally, avoid developing the bad habit of using your credit card or BNPL excessively. Your financial situation will quickly become unmanageable.
Thus, which is preferable—using a credit card or buying now and paying later? Make your own decision based on your needs.

There are important distinctions between the two. One significant distinction is that credit cards are accepted more broadly than BNPL applications, which are exclusively recognized by particular store lenders.

Credit cards may or may not require a minimum monthly payment. While cardholders are free to select when to settle purchases, failure to pay the balance by the end of the billing cycle will result in monthly interest charges.

For each purchase, a lot of BNPL applications provide loans with predetermined payment schedules. Every service is different; thus, some might not charge interest or late fees.

But no doubt youngsters will accept BNPL more happily than their older people because of ease and convenience.

Be cautious while using applications and payment methods that allow you to “buy now, pay later.” Avoid developing the compulsive habit of paying for your purchases later. “Buy-Now-Pay-Later” shouldn’t quickly turn into “Buy-Now-Regret-Later.” Is it not?

And if I were to advise you, I would advise you to have a simple life. Don’t buy until you have the entire payment. If not, put off purchasing or first save for it and then buy it.