A new method of payment for consumers has recently gained popularity, and it does not appear to be slowing down. But, exactly, what is buy now, pay later (BNPL)? And what are the benefits and drawbacks of using this method?
What is Buy Now Pay Later (BNPL)?
When you’re about to make a large purchase, you may have received an offer to pay in installments at the checkout. This is referred to as a “Buy Now, Pay Later” offer (BNPL).
Buy Now, Pay Later (BNPL) is a type of short-term financing that allows consumers to make purchases and pay for them later, often with no interest. BNPL arrangements, also known as “point of sale installment loans,” are becoming a more popular payment option, particularly when shopping online.
You’re partially correct if you think BNPL sounds a lot like the concept of layaway. It’s a similar concept, but the consumer can take their item home with them for a fraction of the total cost, whereas layaway customers must pay off the entire purchase before receiving their item.
How Does BNPL Work?
Point-of-sale Installment loans, also known as “buy now, pay later” loans, allow you to make a purchase and pay for it over time. Certain retailers provide these loans, and each has its own set of terms and conditions.
In general, you make a purchase at a participating retailer and select the installment loan option at checkout. If you are approved (which you will be in seconds), you make a small down payment, such as 25% of the total purchase price.
Depending on the type of BNPL, you then pay off the remaining balance in a series of interest-free installments. You can pay by check or bank transfer; payments can also be automatically deducted from your debit card, bank account, or credit card.
Note: There are two types of buy now, pay later (BNPL) loans: no-interest loans and interest-bearing loans.
Instead of the consumer paying interest on the loan, the merchant pays a fee to the third-party lending company with no-interest loans. Loans with interest allow the consumer to make a purchase right away, but with interest, much like a credit card.
What Are The Advantages of BPNL?
Buy now, pay later (BNPL) is a great payment method with numerous benefits. For starters, BNPL does not perform a hard credit pull. This means that using this payment method will have no effect on your credit score.
Furthermore, BNPL is simple and easy to use, particularly for online shopping. Another great advantage of BNPL is that it can help you with your budget by breaking down payments. This can help you afford items that you otherwise would not be able to afford all at once.
Finally, with BNPL, you can get the item with a small down payment. This is useful if you require the item immediately but cannot afford the full price.
What Are the Risks of BNPL?
Purchase now and pay later Payment methods (such as Afterpay, Klarna, and Affirm) do have risks. For starters, it may tempt you to spend more money than you have or that is within your budget. This is because you may only have to pay a small amount each week or month and thus may be unaware of the total cost.
Second, this method is ineffective for consumers attempting to establish or improve their credit score. However, if you make any late payments, your credit score may suffer.
Finally, make sure you read and understand the transaction terms because not all BNPL offerings are the same. Some organizations, for example, charge a flat fee, so the total payment exceeds the cost of purchasing the item outright.
Buy now, pay later arrangements can be a great way to get the items you want right away, without having to come up with the full amount of money upfront. They can also help you budget for big purchases by spreading the cost out over time. However, it’s important to read the terms and conditions of any buy now, pay later service before you agree to use it, so that you understand exactly how it works and what the consequences are if you don’t make your payments on time.
If you are considering using buy now pay later, it is important to weigh the benefits and risks before making a decision.
What are your thoughts on buy now, pay later as a payment method? Do the benefits outweigh the risks? Please let us know in the comments section; we’d love to hear from you.