Buy Now Pay Later (BNPL) services witnessed a surge during the pandemic. In the past six months, it grew by 21% and reports suggest that this service will grow at a CAGR of 15% and above for the next five years. However, while BNPL seems to ease the lives of several consumers, in reality, many are getting adversely affected by them. To understand this better and know how to use BNPL services for your benefit, let's dig a little deeper.
What is BNPL and how does it work
BNPL services can be referred to as credit services where you can purchase goods and services without paying for them upfront. So, the BNPL service will pay on your behalf to the merchant from whom you purchase the goods and services. Then within a stipulated period, you have to repay the amount to the BNPL service provider. This is the basic structure of the BNPL industry.
If you repay the amount which you have taken as a credit to the BNPL provider within the stipulated tenure, nothing like it. However, if you cannot or intentionally don’t pay it, then a lot of miseries are coming your way.
Let’s discuss one at a time.
Hefty late payment charges: Usually, BNPL providers offer a window of 15 days to 45 days for repaying the amount. However, the tenure also depends on the amount of credit availed. For instance, if you have purchased a refrigerator that costs Rs 25000, then the tenure usually goes up from 180 days to a year.
Moreover, you can also choose the tenure with which you are comfortable and confident. The problem arises when you fail to pay back within that tenure. BNPL service providers levy hefty charges as penalties for late payment.
While some of them charge penalties on daily basis, some other charges fixed penalties. During the pandemic, many people used BNPL for purchasing daily requirements for which they had to avail of a very nominal amount of credit. However, many of them end up paying double and triple the amount due to late payments.
So, while BNPL services can be a saviour on days when you are short on cash, if you don’t pay the amount within time, you have to end up paying a lot more which can affect your financial situation way too bad.
Credit score goes down: If you are thinking that you are availing of small credit from BNPL and it won’t affect your credit score, then you are wrong. If you are defaulting on paying the amount, your credit history is affected and thus your credit score.
Increases your debt burden: If you miss paying your BNPL loan on time, your debt increases, burdening you more. The more you delay, the higher the amount of debt will be.
Harassment: If you miss paying your EMIs of BNPL loans, you will get continuous phone calls from the company asking you to pay the loan amount. There are also legal actions that the companies take on borrowers who don’t pay the loan back for months.
How can you use BNPL services for your benefit
The question thus arises: Is BNPL service a boon or bane?
The answer is your intention of using the BNPL services. Yes, BNPL services can work as a saviour during a cash crunch or at the end of the month when you have exhausted your budget. But, if you have the intention to not pay back the loan within the stipulated period, then it can turn into a nightmare.
However, if you avail of BNPL services and also repay the amount within due time, your credit score will increase. This will help you build a good credit history even after availing of small credit facilities. This can help you in the future for availing of home loans, business loans, and other personal loans.
If you avail of the BNPL services intending to repay the amount within due time, you can enjoy the credit facility without paying any interest or penalties for the tenure.
It will be fair to say that if you use the BNPL services wisely then it can be a boon for you. With simple financial planning and budgeting, you can make use of this service wisely and also create a better credit history and increase your credit score.
(Viral Bhatt is the Founder of Money Mantra — a personal finance solutions firm)
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